QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the quarterly period ended September 30, 2017

OR

[ ]

TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from ___________ to ___________

Commission
File Number: 001-33297

POSITIVEID
CORPORATION

(Exact
name of registrant as specified in its charter)

DELAWARE

06-1637809

(State
or other jurisdiction of incorporation or organization)

(I.R.S.
Employer Identification No.)

1690
South Congress Avenue, Suite 201

Delray
Beach, Florida 33445

(561)
805-8000

(Address
of principal executive offices, including zip code)

(Registrant’s
telephone number, including area code)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.

Large
accelerated filer

Accelerated
filer

Non-accelerated
filer

Smaller
reporting company

Emerging
growth company

[ ]

[ ]

[ ]

[X]

[ ]

(Do
not check if a smaller reporting company)

If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]

The
number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on November 7,
2017 is as follows:

Series
J Convertible Preferred – 1,700 shares authorized, 71 shares issued and outstanding at September 30, 2017 and December
31, 2016, (liquidation preference of $71,000 at September 30, 2017 and December 31, 2016).

—

—

Series
II Convertible Preferred – 4,000 shares authorized, 3,097 and 2,262 shares issued and outstanding at September 30, 2017
and December 31, 2016, respectively; (liquidation preference of $3,281,728 and $2,315,293, at September 30, 2017 and December
31, 2016, respectively).

—

—

Common
stock, 19,995,000,000 shares authorized, $0.0001 par value; 84,856,216 and 894,909 shares issued and outstanding at September
30, 2017 and December 31, 2016.

PositiveID
Corporation, including its wholly-owned subsidiaries PositiveID Diagnostics Inc. (“PDI”) and Thermomedics, Inc. (“Thermomedics”),
and its majority owned subsidiaries E-N-G Mobile Systems, Inc. (“ENG”) and ExcitePCR Corporation (“ExcitePCR”)
(collectively, the “Company” or “PositiveID”), develops molecular diagnostic systems for bio-threat detection
and rapid medical testing; manufactures specialty technology vehicles; and markets the Caregiver® non-contact clinical thermometer.
The Company’s fully automated pathogen detection systems are designed to detect a range of biological threats. The Company’s
M-BAND (Microfluidic Bio-agent Autonomous Networked Detector) system is an airborne bio-threat detection system developed for
the homeland defense industry to detect biological weapons of mass destruction. The Company is developing the FireflyDX family
of products, automated pathogen detection system for rapid diagnostics, both for clinical and point-of-need applications. The
Company also manufactures specialty technology vehicles focused primarily on mobile laboratory and communications applications.
The Company’s Caregiver® thermometer is an FDA-cleared infrared thermometer for the professional healthcare market.

Authorized
Common Stock

On
January 30, 2017, the Company filed the First Amendment to the Company’s Third Amended and Restated Certificate of Incorporation
with the State of Delaware, to increase the Company’s authorized capital stock from 3.9 billion shares to 20 billion shares
(19.995 billion common) and to change the par value of the Company’s common stock from $0.001 to $0.0001 (the “Common
Stock”). On May 19, 2017, the
Company filed the Second Amendment to the Third Amended and Restated Certificate of Incorporation, as amended, with
the State of Delaware, to implement a 1-for-3,000 reverse stock split of the Company’s outstanding Common Stock,
which became effective on May 23, 2017. The reverse stock split affected the outstanding Common Stock as well as all Common Stock
underlying convertible notes, warrants, convertible preferred stock and stock options outstanding immediately prior to the reverse
stock split. The number of authorized shares was not adjusted. All share and per share amounts in the accompanying historical
consolidated financial statements have been retroactively adjusted to reflect the change in the par value of the Common Stock
and the 1-for-3,000 reverse stock split.

Going
Concern

The
Company’s unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern.
As of September 30, 2017, we had a working capital deficit, stockholders’ deficit and accumulated deficit of approximately
$10.3 million, $9.0 million and $164 million, respectively, compared to a working capital deficit, stockholders’
deficit and accumulated deficit of approximately $10.3 million, $9.0 million and $157 million, respectively, as of December 31,
2016. The working capital deficit is primarily the result of the Company’s convertible debt financings.

We
have incurred operating losses and net cash used in operating activities since the merger that created PositiveID in 2009. The
current 2017 operating losses are the result of research and development expenditures and selling, general and administrative
expenses related to our molecular diagnostics and Caregiver products. We expect our operating losses to continue through 2017.
It’s management’s opinion that these conditions raise substantial doubt about our ability to continue as a going concern
for a period of one year from the date of this filing.

Our
ability to continue as a going concern is dependent upon our ability to obtain financing to fund the continued development of
our products and to support working capital requirements. Until we are able to achieve operating profits, we will continue to
seek to access the capital markets. In fiscal 2016 and for the first nine months of 2017, we raised approximately $3.8 and $1.9
million, respectively primarily from the issuance of convertible debt. In addition, during the nine months ended September 30,
2017, we received approximately $1.4 million of net proceeds from the sale to a strategic investor of a non-controlling interest
in one of our subsidiaries (see Note 3).

The
Company intends to continue to access capital to provide funds to meet its working capital requirements for the near-term future.
In addition, and if necessary, the Company could reduce and/or delay certain discretionary research, development and related activities
and costs. However, there can be no assurances that the Company will be able to negotiate additional sources of equity or credit
for its long-term capital needs. The Company’s inability to have continuous access to such financing at reasonable costs
could materially and adversely impact its financial condition, results of operations and cash flows, and result in significant
dilution to the Company’s existing stockholders. The Company’s consolidated financial statements do not include any
adjustments relating to recoverability of assets and classifications of assets and liabilities that might be necessary should
the Company be unable to continue as a going concern.

7

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Basis
of Presentation

The
accompanying condensed consolidated balance sheet as of December 31, 2016 has been derived from the Company’s audited financial
statements included in its Annual Report on Form 10-K for the year ended December 31, 2016. The accompanying unaudited condensed
consolidated financial statements for the nine months ended September 30, 2017 and 2016 have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules
and regulations of the Securities Exchange Commission (“SEC”). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of
the Company’s management, all adjustments (including normal recurring adjustments) necessary for a fair presentation for
the periods presented have been reflected as required by Regulation S-X, Rule 10-01.

The
unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2017 are not necessarily
indicative of the results that may be expected for the entire year. These statements should be read in conjunction with the consolidated
financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2016.

2.
Summary of Significant Accounting Policies

Principles
of Consolidation

The
unaudited consolidated financial statements include the accounts of the Company and its wholly-owned and majority- owned subsidiaries
of which all are inactive except for PDI, Thermomedics and ENG. All intercompany balances and transactions have been eliminated
in the consolidation.

On
July 17, 2017, ExcitePCR Corporation, a majority-owned subsidiary of the Company, was formed to own and further the development
of the FireflyDX family of products. ExcitePCR was incorporated in the State of Delaware
and is inactive as of September 30, 2017 (see Note 3).

Non-Controlling
Interest

On
June 12, 2017, the Company sold 49% ownership of ENG, to a strategic investor. Accordingly, the Company is presenting noncontrolling
interests as a component of equity on its consolidated balance sheets under the heading “Non-controlling interest in consolidated
subsidiary” and reports noncontrolling interest net income or loss under the heading “Net (income) loss allocated
to noncontrolling interest in consolidated subsidiary” in the consolidated statements of operations based on its 51% ownership
(see Note 3).

On
August 24, 2017, the Company and its wholly-owned subsidiary PositiveID Diagnostics, Inc. (collectively, the “Seller”),
entered into an Asset Purchase Agreement (“APA”) with its majority-owned subsidiary, ExcitePCR Corporation (the “Buyer”).
Pursuant to the APA, at closing, the Company will own approximately 91% of the Buyer post-closing of the sale. As of September
30, 2017, the Buyer has not yet fulfilled the conditions to close the transaction (see Note 3), which include the Buyer completing
a financing of at least $3 million.

Use
of Estimates

The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates during the reported periods include valuation of assets acquired and liabilities assumed in business
combinations, allowance for doubtful accounts receivable, inventories valuation, estimates of depreciable lives and valuation
of property and equipment, valuation of goodwill and intangible assets and related amortization period, valuation of loss and
other contingencies, product warranty liabilities, valuation of derivatives, valuation of beneficial conversion features, estimate
of contingent earn-out liabilities, valuation of stock-based compensation and an estimate of the deferred tax asset valuation
allowance.

Inventories

Inventories
consist of finished goods of our Caregiver non-contact thermometers, and in our Mobile Lab Segment consists of finished goods,
standard and manufactured frames and bodies of vehicles, components of mobile units and other materials and is stated at lower
of cost and net realizable value on average basis. The Company early adopted ASU 2015-11 “Simplifying the Measurement
of Inventory” on January 1, 2016, and there was no material impact. Reserves, if necessary, are recorded to reduce inventories
to net realizable value based on assumptions about consumer demand, current inventory levels and product life cycles for the various
inventory items. These assumptions are evaluated periodically and are based on the Company’s business plan and from feedback
from customers and the product development team; however, estimates can vary significantly. As of September 30, 2017 and December
31, 2016, inventory reserves were not material.

8

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Inventories
consisted of the following (in thousands):

September
30, 2017

December
31, 2016

Finished
goods of Caregiver® non-contact thermometers

$

41

$

28

Materials
inventory

652

462

Mobile
vehicle inventory

—

188

$

693

$

678

Intangible
Assets and Goodwill

Intangible
assets are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful lives.
Customer contracts and relationships are being amortized over a period of 3 years, patents and other intellectual property are
being amortized over a period of 5 years, and non-compete agreements are being amortized over 2 years.

The
Company continually evaluates whether events or circumstances have occurred that indicate the remaining estimated useful lives
of its definite-lived intangible assets may warrant revision or that the remaining balance of such assets may not be recoverable.
The Company uses an estimate of the related undiscounted cash flows attributable to such asset over the remaining life of the
asset in measuring whether the asset is recoverable.

The
Company records goodwill as the excess of the purchase price over the fair values assigned to the net assets acquired in business
combinations. Goodwill is allocated to reporting units as of the acquisition date for the purpose of goodwill impairment testing.
The Company’s reporting units are those businesses for which discrete financial information is prepared. ASC 350, “Intangibles
— Goodwill and Other” requires that intangible assets with indefinite lives, including goodwill, be evaluated on an
annual basis for impairment or more frequently if an event occurs or circumstances change that could potentially result in impairment.
The goodwill impairment test requires the allocation of goodwill and all other assets and liabilities to reporting units. If the
fair value of the reporting unit is less than the book value (including goodwill), then goodwill is reduced to its implied fair
value and the amount of the write-down is charged to operations. We are required to test our goodwill and intangible assets with
indefinite lives for impairment at least annually.

In
assessing potential impairment of the intangible assets recorded in connection with PDI, ENG and Thermomedics, as of September
30, 2017, we considered the likelihood of future cash flows attributable to such assets on a per segment basis. Based on our analysis,
we have concluded based on information currently available, that no impairment of the intangible assets exists as of September
30, 2017. The Company performed its annual impairment test of goodwill as of December 31, 2016. As a result of this annual test,
it was determined that the goodwill balance as of December 31, 2016 was not impaired. The amortization expense was approximately
$39,000 and $39,000 for the three months ended September 30, 2017 and 2016, respectively and was approximately $116,200 and $218,000
for the nine months ended September 30, 2017 and 2016, respectively.

Revenue
Recognition

Revenue
is recognized when persuasive evidence of an arrangement exists, collectability of arrangement consideration is reasonably assured,
the arrangement fees are fixed or determinable and upon completion and delivery in accordance with the customer contract or purchase
order.

If
at the outset of an arrangement, the Company determines that collectability is not reasonably assured, revenue is deferred until
the earlier of when collectability becomes probable or the receipt of payment. If there is uncertainty as to the customer’s
acceptance of the Company’s deliverables, revenue is not recognized until the earlier of receipt of customer acceptance
or expiration of the acceptance period. If at the outset of an arrangement, the Company determines that the arrangement fee is
not fixed or determinable, revenue is deferred until the arrangement fee becomes estimable, assuming all other revenue recognition
criteria have been met.

To
date, the Company has generated revenue from three sources: (1) professional services, (2) technology licensing, and (3) product
sales.

9

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Specific
revenue recognition criteria for each source of revenue is as follows:

(1)

Revenues
for professional services, which are of short term duration, are recognized when services are provided;

(2)

Technology
license revenue is recognized upon the completion of all terms of that license. Payments received in advance of completion
of the license terms are recorded as deferred revenue; and

(3)

Revenue
from sales of the Company’s products is recorded when risk of loss has passed to the buyer and criteria for revenue
recognition discussed above is met. Payments received in advance of delivery and revenue recognition are recorded as deferred
revenue.

If
these criteria are not met, the arrangement is accounted for as one unit of accounting which would result in revenue being recognized
ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered
element is delivered. If these criteria are met for each element and there is a relative selling price for all units of accounting
in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative
selling price.

Concentrations

Concentration
of Deferred Revenue

As
of September 30, 2017, the Company had deferred revenue of approximately $0.6 million of which 30%, 17% and 16% were from three
of the Company’s customers. As of December 31, 2016, the Company had deferred revenue of approximately $0.4 million of which
54% and 20% were from two of the Company’s customers.

Concentration
of Revenues

During
the three months ended September 30, 2017, the Company generated revenue of approximately $1.5 million of which 42% and 24% were
from two of the Company’s customers. During the nine months ended September 30, 2017, the Company generated revenue of approximately
$3.9 million of which 32%, 10% and 9% were from three of the Company’s customers.

Concentration
of Accounts Receivable

As
of September 30, 2017, the Company had accounts receivable of approximately $0.3 million of which 70% was from a single customer.
As of December 31, 2016, the Company had accounts receivable of approximately $0.3 million of which 55% and 14% were from two
of the Company’s customers.

Fair
Value of Financial Instruments and Fair Value Measurements

The
Company measures its financial and non-financial assets and liabilities, as well as makes related disclosures, in accordance with
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). For certain of our financial instruments,
including cash, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due
to their short maturities. Amounts recorded for notes payable, net of discount, also approximate fair value because current interest
rates available to the Company for debt with similar terms and maturities are substantially the same.

ASC
Topic 820 provides guidance with respect to valuation techniques to be utilized in the determination of fair value of assets and
liabilities. Approaches include, (i) the market approach (comparable market prices), (ii) the income approach (present value of
future income or cash flow), and (iii) the cost approach (cost to replace the service capacity of an asset or replacement cost).
ASC Topic 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:

Level
1:

Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level
2:

Inputs
other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.

Level
3:

Unobservable
inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which
reflect those that a market participant would use.

Stock-Based
Compensation

Stock-based
compensation expenses are reflected in the Company’s consolidated statements of operations under selling, general and administrative
expenses and research and development expenses.

10

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

The
Company estimates the fair value of stock-based compensation awards on the date of grant using the Black-Scholes-Merton (“BSM”)
option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions
and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including
the expected stock price volatility. The BSM option pricing model considers, among other factors, the expected term of the award
and the expected volatility of the Company’s stock price. Expected terms are calculated using the Simplified Method, volatility
is determined based on the Company’s historical stock price trends and the discount rate is based upon treasury rates with
instruments of similar expected terms. Warrants granted to non-employees are accounted for in accordance with the measurement
and recognition criteria of ASC Topic 505-50, Equity Based Payments to Non-Employees.

Compensation
expense for all stock-based employee and director compensation awards granted is based on the grant date fair value estimated
in accordance with the provisions of ASC Topic 718, Stock Compensation (“ASC Topic 718”). The Company recognizes these
compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term.
Vesting terms vary based on the individual grant terms.

Segments

The
Company follows the guidance of ASC 280-10 for “Disclosures about Segments of an Enterprise and Related Information.”
The Company operated in three business segments as of September 30, 2017: Molecular Diagnostics, Medical Devices and Mobile Labs
(see Note 9).

Loss
per Common Share

The
Company presents basic net income (loss) per common share and, if applicable, diluted net income (loss) per share. Basic income
(loss) per common share is based on the weighted average number of common shares outstanding during the year and after preferred
stock dividends. The calculation of diluted income (loss) per common share assumes that any dilutive convertible preferred shares
outstanding at the beginning of each year or the date issued were convertible at those dates, with preferred stock dividend requirements
and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable
upon exercise of those stock options and warrants for which the average period market price exceeds the exercise price, less shares
that could have been purchased by the Company with related proceeds. Additionally, shares issued upon conversion of convertible
debt are included.

The
following potentially dilutive equity securities outstanding as of September 30, 2017 and as of December 31, 2016 were not included
in the computation of dilutive loss per common share because the effect would have been anti-dilutive:

September
30, 2017

December
31, 2016

Common
shares issuable under:

Convertible
notes

516,232,731

4,429,144

Convertible
Series II Preferred Stock

187,527,314

1,102,798

Convertible
Series J Preferred Stock

4,057,143

33,810

Stock
options, restricted stocks and warrants

2,105

2,105

707,819,293

5,567,857

The
Common shares issuable under the convertible notes, convertible Series II and Series J Preferred Stock was calculated using the
closing bid prices at September 30, 2017 and December 31, 2016 which were $0.0175 and $2.10, respectively.

Recent
Accounting Pronouncements

There
are no new accounting pronouncements during the nine months ended September 30, 2017 other than those described below that affect
the consolidated financial position of the Company or the results of its operations. Accounting Standard Updates which are not
effective until after September 30, 2017, and the potential effects on the Company’s consolidated financial position or
results of its operations are discussed below.

ASU
2017-11:

In
July 2017, FASB issued Accounting Standards Update (“ASU”), 2017-11 —Earnings Per Share (Topic 260); Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments
with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments
in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.

11

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

As
a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as
a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS.

Convertible
instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent
beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS
guidance (in Topic 260).

The
amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented
as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.

For
public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective
for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect. The Company is currently evaluating the impact of this accounting standard.

ASU
2017-09:

In
May 2017, FASB issued Accounting Standards Update (“ASU”), 2017-09 —Compensation—Stock Compensation (Topic
718): Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions
of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the
effects of a modification unless all the following are met:

1.

The
fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award
is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used)
of the original award immediately before the original award is modified. If the modification does not affect any of the inputs
to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately
before and after the modification.

2.

The
vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the
original award is modified.

3.

The
classification of the modified award as an equity instrument or a liability instrument is the same as the classification of
the original award immediately before the original award is modified.

The
current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting
under the amendments in this Update.

Effective
for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which
financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements
have not yet been made available for issuance. This updated guidance is not expected to have a material impact on our results
of operations, cash flows or financial condition.

ASU
2017-08:

In
March 2017, FASB issued Accounting Standards Update (“ASU”), 2017-08—Receivables—Nonrefundable Fees and
Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update more
closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying
securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon
is above current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon
is below market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic
best interest. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount
with the economics of the underlying instrument.

12

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

For
public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including
adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected
as of the beginning of the fiscal year that includes that interim period. This updated guidance is not expected to have a material
impact on our results of operations, cash flows or financial condition.

ASU
2017-04:

In
January 2017, FASB issued Accounting Standards Update (“ASU”), 2017-04 — Intangibles—Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment. Under the amendments in this Update, an entity should perform its annual,
or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should
recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should
consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill
impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying
amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment
test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of
goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.

A
public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017. This updated guidance is not expected to have a material impact
on our results of operations, cash flows or financial condition.

ASU
2016-20:

In
December 2016, FASB issued Accounting Standards Update (“ASU”), 2016-20 — Technical Corrections and Improvements
to Topic 606, Revenue from Contracts with Customers. The amendments in this Update affect the guidance in Update 2014-09, which
is not yet effective. The effective date and transition requirements for the amendments are the same as the effective date and
transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09
by one year. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial
condition (see ASU 2016-12 and ASU 2014-09 below).

Settlement
of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to
the Effective Interest Rate of the Borrowing

3.

Contingent
Consideration Payments Made after a Business Combination

4.

Proceeds
from the Settlement of Insurance Claims

5.

Proceeds
from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies

6.

Distributions
Received from Equity Method Investees

7.

Beneficial
Interests in Securitization Transactions

8.

Separately
Identifiable Cash Flows and Application of the Predominance Principle

Effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within
fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity
early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. This updated
guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

13

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

ASU
2016-12:

In
May 2016, FASB issued Accounting Standards Update (“ASU”), 2016-12— Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update affect the guidance in Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and
any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year to December 15, 2017. This updated
guidance is not expected to have a material impact on our results of operations, cash flows or financial condition (see ASU 2016-20,
10 and ASU 2014-09 below).

ASU
2016-10:

In
April 2016, FASB issued Accounting Standards Update (“ASU”), 2016-10—Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing. The amendments in this Update affect the guidance in Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and
any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year to annual reporting periods beginning
after December 15, 2017. This updated guidance is not expected to have a material impact on our results of operations, cash flows
or financial condition (see ASU 2016-20, 12 above and ASU 2014-09 below).

ASU
2016-02:

In
February 2016, FASB issued Accounting Standards Update (“ASU”), 2016-02— “Leases (Topic 842), Section
A—Leases: Amendments to the FASB Accounting Standards Codification; Section B—Conforming Amendments Related to Leases:
Amendments to the FASB Accounting Standards Codification; Section C—Background Information and Basis for Conclusions”.
The amendment in this update are effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years, for any of the following:

1.

A
public business entity

2.

A
not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on
an exchange or an over-the-counter market

3.

An
employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC).

For
all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. Early application of the amendments in this Update is permitted
for all entities. This updated guidance is not expected to have a material impact on our results of operations, cash flows or
financial condition.

ASU
2014-09:

In
June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”.
The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue
resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters
into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition,
and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede
some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The
update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue
issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the
update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer (see
ASU 2016-20, 12 and 10 above).

14

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

3.
Non-Controlling Interest in Consolidated Subsidiary

ExcitePCR

On
August 24, 2017, the Company and its wholly-owned subsidiary PositiveID Diagnostics, Inc. (collectively, the “Seller”),
entered into an Asset Purchase Agreement (“APA”) with its majority-owned subsidiary, ExcitePCR Corporation (the “Buyer”).
Pursuant to the APA, at closing, the Seller will sell and deliver to the Buyer all right, title and interest in all assets used
or useful in connection with the operation of the FireflyDX technology, which consists of the FireflyDX intellectual property
and that of its predecessor, the Dragonfly Dx technology and products, along with patents, the applicable know how used in the
development of the FireflyDX and Dragonfly Dx technology, and breadboard prototypes of both products (the “Firefly Technology”).
The consideration to be paid by the Buyer to the Seller pursuant to the APA, will be 10,500,000 shares of common stock of the
Buyer, and the Company will own approximately 91% of the Buyer post-closing of the sale (prior to any financing). As a condition
to the Seller’s obligation to close the transaction, the Buyer shall have completed a financing transaction with net proceeds
to the Buyer of at least $3 million. Additional conditions and deliverables at closing include a patent assignment agreement,
accounting services agreement, license agreement, and certain required consents from third parties.

The
Company believes that the Firefly Technology has significant potential value to stockholders. The parties have entered into the
APA so the Buyer can secure financing and then independently pursue the development, improvement and commercialization of the
Firefly Technology. The current stockholders of the Buyer include two third-party individuals, who are working with the Buyer
to develop and execute the business plan of the Buyer. Lyle L. Probst (the Company’s President) is the Chief Executive Officer
of the Buyer, Dr. Kimothy Smith (the Company’s Chief Technology Advisor) is the Chief Science Officer of the Buyer. William
J. Caragol (the Company’s Chairman and CEO), is the Chairman of the Buyer.

As
of September 30, 2017, the Buyer and the Company had not yet closed the transaction.

ENG
Mobile Systems

On
June 12, 2017, the Company entered into a Stock Purchase Agreement (“SPA”) with ENG, a California corporation and
Holdings ENG, LLC, a Florida limited liability company, and an affiliate of East West Resources Corporation (the “Purchaser”),
pursuant to which (i) the Company sold 49%, or two hundred ninety nine (299) shares of Series A Convertible Preferred Stock (the
“Purchased Shares”), of ENG, (ii) the Company granted Purchaser an option to purchase up to an additional 10%, or
sixty (60) shares of Series A Convertible Preferred Stock, of ENG from the Company’s holdings (the “Option Shares”)
and (iii) ENG, pursuant to a stock option agreement (the “Stock Option Agreement”), granted Purchaser an option to
purchase 1%, or three (3) shares of Series A Convertible Preferred Stock, of ENG directly from ENG (collectively, the “Transaction”).
The Company received one million four hundred ninety-five thousand dollars ($1,495,000) or $5,000 per share of Series A Convertible
Preferred Stock, in exchange for the Purchased Shares. The exercise price payable to the Company or ENG for each of the Company’s
Option Shares is five thousand dollars ($5,000) (subject to adjustment). The Purchaser options are not exercisable until June
12, 2018.

Immediately
prior to the closing of the Transaction, ENG effected a recapitalization so that there are two classes of its stock as follows:
(i) 2,000 authorized shares of common stock, $0.001 par value, with 241 shares, issued and outstanding and held by the Company;
and (ii) 1,000 authorized shares of Series A Convertible Preferred Stock, $0.001 par value (the “Series A Convertible Stock”),
with 359 shares of Series A Convertible Stock issued and outstanding and held by the Company prior to the closing of the Transaction.
After the closing of the transaction, the Company owned 60 shares of Series A Convertible Stock. Immediately following the closing
of the Transaction, the Company owned 241 common shares and 60 shares of Series A Convertible Preferred Stock of ENG, or 50.2%
of the voting interest in ENG; immediately following the closing of the Transaction, the Purchaser owned 299 shares of Series
A Convertible Preferred Stock of ENG, or 49.8% of the voting interest in ENG.

A
summary of the Series A Convertible Stock of ENG is set forth below:

Voting
and Protective Provisions. The Series A Convertible Stock shall vote together with the common stock of ENG, except as required
by law. The Series A Convertible Stock contain protective provisions such that the vote of a majority of the outstanding shares
of Series A Stock is required to engage in certain acts, including (i) file a petition in bankruptcy; (ii) create, authorize,
authorize the creation of, issue or sell any equity security, any security convertible into or exercisable for any equity security
or option; (iii) permit any consolidation, reorganization or merger of ENG with or into any other person; (iv) acquire all or
substantially all of the properties, assets or capital stock of any other corporation or entity; (v) sell, lease or otherwise
dispose of assets or properties of ENG in an aggregate amount in excess of $100,000 in any calendar year, other than in the ordinary
course of business; (vi) grant any lien on or security interest in any of ENG’s assets other than in the ordinary course
of business; (vii) incur any indebtedness for borrowed funds, excluding any draws on any line of credit in the ordinary course
of business; (viii) create or authorize the creation of any debt security; (ix) approve or execute any contract, agreement or
lease giving rise to a financial commitment or obligation of ENG other than in the ordinary course of business; (x) purchase or
redeem or pay any dividend on any capital stock, make any distribution or authorize a stock split or split-up; (xi) increase or
decrease the size of the Board of Directors of ENG; (xii) create, or authorize the creation of, a subsidiary; (xiii) make any
loan or advance to any person, except advances in the ordinary course of business; (xiv) guarantee any indebtedness except for
trade accounts of ENG arising in the ordinary course of business; (xv) make any investment inconsistent with any investment policy
approved by the Board of Directors of ENG; (xvi) enter into or be a party to any transaction with (A) any director, officer or
employee of ENG or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such person
or (B) any “affiliate” (as defined in Rule 12b-2 promulgated under the Exchange Act); (xvii) change the principal
business of ENG, enter new lines of business, or exit the current line of business; (xviii) sell, assign, license, pledge or encumber
material technology or intellectual property, other than licenses granted in the ordinary course of business; (xix) amend the
Articles of Incorporation or the Bylaws of ENG (xx) purchase, option or otherwise acquire any real property or any interest therein;
(xxi) dissolve, wind-up or cease operations of ENG; or (xxii) enter into any corporate strategic relationship, joint venture or
partnership.

15

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Dividends.
Dividends may not be declared on any class of stock unless paid pro rata on all classes of stock.

Liquidation.
Upon on any liquidation, dissolution or winding up of ENG, after payment or provision for payment of debts and other liabilities
of ENG, before any distribution or payment is made to the holders common stock or any junior securities, the holders of Series
A Convertible Stock shall first be entitled to be paid out of the assets of the Company available for distribution to its stockholders
an amount equal to $5,000 per share (subject to adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the Series A Convertible Stock), plus any dividends declared but unpaid on such shares.
The occurrence of a merger or consolidation or sale of substantially all of the assets of ENG shall be deemed to be a liquidation
of ENG.

In
addition, in connection with the Transaction, the Company entered into an Executive Services Agreement, dated June 12, 2017, with
Purchaser and Mr. Lyle Probst, the Company’s President (the “Executive Services Agreement”), pursuant to which
the Company has agreed to provide ENG the services of Mr. Probst to continue to act as President of ENG (the “Services”).
As compensation for the Services, ENG will pay the Company nine thousand five hundred twenty-five dollars ($9,525) per month,
for a twelve-month period.

The
Company retained control over ENG and accounted for sale of the non-controlling interest as an equity transaction in accordance
with ASC 810-10-42-23. No gain or loss was recognized in the accompanying unaudited consolidated statement of operations. The
difference between the fair value of consideration, transaction costs and carrying amount of the non-controlling interest resulted
in “net gain” in the amount of $1,242,083 which was recorded in the in the equity section of the accompanying unaudited
balance sheet in additional paid in capital. The carrying amount of the non-controlling interest was recorded separate from the
Company’s total equity under “non-controlling interest in consolidated subsidiaries” and was adjusted to reflect
the change in ownership interest in the subsidiary as of June 30, 2017. The net gain and adjustment to the carrying amount of
the non-controlling interest as of September 30, 2017 are detailed below:

Sale
of non-controlling interest reconciliation:

Fair
value of consideration

$

1,495,000

Transaction
costs

(107,255

)

Cash
received

1,387,745

Equity
allocated to non-controlling interest

(67,662

)

PSID
common stock issued as fee (transaction cost)

(78,000

)

Net
gain on sale of non-controlling interest

$

1,242,083

Non-controlling
interest balance reconciliation:

Beginning
balance, January 1, 2017

$

—

Equity
allocated to non-controlling interest, June 12, 2017

67,662

Income
allocated to non-controlling interest

19,157

Ending
balance, September 30, 2017

$

86,819

16

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

4.
Equity and Debt Financing Agreements and Fair Value Measurements

Convertible
Note Financings

Short-term
convertible debt as of September 30, 2017 is as follows (In thousands):

On
November 25, 2014, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated November
25, 2014 (the “Note I SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate subscription
amount of $4,000,000 (the “Purchase Price”). Pursuant to the Note I SPA, the Company issued a series of 4% Original
Issue Discount Senior Secured Convertible Promissory Notes (collectively, the “Note I”) to the Purchaser. The Purchase
Price will be paid in eight equal monthly payments of $500,000. Each individual Note was issued upon payment and will be amortized
beginning six months after issuance, with amortization payments being 1/24th of the principal and accrued interest,
made in cash or common stock at the option of the Company, subject to certain conditions contained in the Note I SPA. The Company
also reimbursed the Purchaser $25,000 for expenses from the proceeds of the first tranche and the Purchaser’s counsel $25,000
from the first tranche.

On
August 14, 2015, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated August 14,
2015 (the “Note II SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate subscription amount
of $2,400,000 (the “Purchase Price”). Pursuant to the Note II SPA, the Company issued a series of 4% Original Issue
Discount Senior Secured Convertible Promissory Note (collectively, the “Note II”) to the Purchaser. The Purchase Price
was paid in six equal monthly payments of $400,000. Each individual Note was issued upon payment and is amortized beginning six
months after issuance, with amortization payments being 1/24th of the principal and accrued interest, made in cash
or common stock at the option of the Company, subject to certain conditions contained in the Note II SPA. The Company also reimbursed
the Purchaser $20,000 for expenses from the proceeds of the first tranche and the Purchaser’s counsel $10,000 from the first
tranche.

The
aggregate principal amount of both Notes I and II are issued with a 4% original issue discount whereby the aggregate principal
amount of Notes I and II is $6,400,000 but the actual purchase price of Notes I and II is $6,144,000. Each of Notes I and II accrue
interest at a rate equal to 12% per annum and with maturity dates, depending on the date funded, between June 26, 2016 and June
30, 2017. Notes I and II are convertible any time after the issuance date of the notes. The Purchasers have the right to convert
Note I into shares of the Company’s common stock at a conversion price equal to 95% of the daily VWAP on the trading day
immediately prior to the closing of each tranche. The Purchasers have the right to convert Note II into shares of the Company’s
common stock at a conversion price equal to $4,200. Additionally, under certain conditions defined in Notes I and II, the notes
would be convertible into common stock at a price equal to 62.5% of the lowest VWAP during the 15 Trading Days immediately prior
to the applicable amortization date. In the event that there is an Event of Default or certain conditions are not met, the conversion
price will be adjusted to equal to 55% of the lowest VWAP during the thirty (30) Trading Days immediately prior to the applicable
Conversion Date. Notes I and II can be prepaid at any time upon five days’ notice to the Holder by paying an amount in cash
equal to the outstanding principal and interest and a 120% premium.

During
2015, the Company had received all eight tranches under the Note I SPA ($500,000 principal in 2014 and $3,650,000 principal in
2015 which includes an additional $150,000 added to one of the agreed $500,000 monthly funding as requested by the Company), with
maturity dates, depending on the date funded, between June 26, 2016 and December 29, 2016, pursuant to a convertible note. Under
the agreement, the Company received $3,540,600, which was net of the $448,400 Purchaser’s expenses and legal fees and $166,000
which represents the 4% original issue discount. As of June 30, 2016, the Company has received, all six tranches under the Note
II SPA ($2,281,250 in principal in 2015 and $208,333 in 2016) with maturity dates of February 15, 2017 and June 30, 2017, pursuant
to a convertible note. Under the agreement, the Company received $2,143,000, which was net of Purchaser’s expenses, legal
fees of $247,000 and a 4% original issue discount of $99,583. The notes might be accelerated if an event of default occurs under
the terms of the note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events
or if the Company is delinquent in its SEC filings. In connection with the issuance of Notes I and II, the Company recorded a
debt discount of $387,000 in 2014, $5,116,600 in 2015 and $180,000 in 2016, totaling to $5,683,600 of debt discount recorded,
related to the embedded conversion option derivative liability. The amortization expense related to that discount recorded during
the six months ended June 30, 2017 was approximately $161,000 and as of June 30, 2017, the total debt discount recorded has been
fully amortized. During the nine months ended September 30, 2017, $341,615 of the outstanding principal and interest on Notes
I and II was converted into 18,442,220 shares of common stock. As of September 30, 2017, the outstanding principal and interest
on Notes I and II were $1,787,417. As the note conversion includes a “lesser of” pricing provision, a derivative liability
of $8,936,405 was recorded when Notes I and II were entered into. The derivative liability is re-measured at each balance sheet
date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability balance for Notes I
and II at September 30, 2017 was $1,109,291.

17

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
December 22, 2015, in order to finance the acquisition of ENG, the Company closed a financing transaction by entering into a Securities
Purchase Agreement dated December 22, 2015 (the “Note III SPA”) for an aggregate principal amount of $904,042 and
subscription amount of $865,000, net of OID (the “Purchase Price”). The Company also reimbursed the Purchaser $30,000
for legal fees and expenses from the proceeds of the Note. Pursuant to the Note III SPA, the Company shall issue a 4% Original
Issue Discount Senior Secured Convertible Promissory Note (the “Note III”) to Dominion. Note III was issued upon payment
and will be amortized beginning six months after issuance, with amortization payments being 1/24th of the principal and accrued
interest, made in cash or common stock, on a semi-monthly basis, subject to certain conditions contained in the Note III SPA.
The amortization payments will begin to be due starting on the 15th day of the month immediately following the six-month anniversary
of the Closing Date. The Company received funding for Note III on December 24, 2015, net proceeds of $751,500 (net of the $152,542
of legal fees, expenses and OID). Note III accrues interest at a rate equal to 12% per annum (interest is guaranteed for the first
twelve months) and has a maturity date of June 15, 2017. Note III is convertible any time after its issuance date and Dominion
has the right to convert any or all of Note III into shares of the Company’s common stock at a conversion price equal to
$3,300 per share, subject to adjustment as described in Note III. Additionally, under certain conditions defined in Note III,
it may also be convertible into common stock at a price equal to 62.5% of the lowest VWAP during the 15 Trading Days immediately
prior to the applicable amortization date. In the event that there is an Event of Default or certain conditions are not met, the
conversion price will be adjusted to equal to 55% of the lowest VWAP during the thirty (30) Trading Days immediately prior to
the applicable Conversion Date. Note III can be prepaid at any time upon five days’ notice to the Dominion by paying an
amount in cash equal to the outstanding principal and interest, and a 20% premium. In connection with the issuance of the Note
III, the Company recorded a debt discount of $751,500 when Note III was entered into, related to the embedded conversion option
derivative liability. The amortization expense related to that discount recorded during the six months ended June 30, 2017 was
$231,963 and as of June 30, 2017, the total debt discount record has been fully amortized. During the quarter ended June 30, 2017,
$450,000 of the outstanding principal and interest was paid from the proceeds received as discussed in Note 3. As of September
30, 2017, the outstanding principal and interest on Note III was $562,527. As the note conversion includes a “lesser of”
pricing provision, a derivative liability of $1,267,800 was recorded when Note III was entered into. The derivative liability
is re-measured at each balance sheet date, the derivative liability balance for Note III at September 30, 2017 was $349,110.

On
January 28, 2016, the Company closed a financing transaction by entering into a Securities Purchase Agreement dated January 28,
2016 (the “Note IV SPA”) with Dominion Capital LLC (the “Purchaser”) for an aggregate principal amount
of $2,187,500 and subscription amount of $2,100,000 (the “Purchase Price”), net of OID. Pursuant to the Note IV SPA,
the Company shall issue a series of 4% Original Issue Discount Senior Secured Convertible Promissory Notes (collectively, the
“Note IV”) to the Purchaser. The Purchase Price is scheduled to be paid in six equal monthly tranches of $350,000,
subject to the discretion of the Purchaser. Each individual Note will be issued upon payment and will be amortized beginning six
months after issuance, with amortization payments being 1/24th of the principal and accrued interest, made in cash or common stock
at the option of the Company, on a semi-monthly basis, subject to certain conditions and limitations contained in the Note IV
SPA. The amortization payments will begin on the 15th day of the month immediately following the six-month anniversary of the
Closing Date. The Company also reimbursed the Purchaser $20,000 for expenses from the proceeds of the first tranche and the Purchaser’s
counsel $10,000 from the first tranche. During the year ended December 31, 2016, the Company has received a total of $604,763
net proceeds under Note IV (net of the $93,153 of legal fees, expenses and OID). During the three months ended September 30, 2017,
the Company received a total of $96,000 net proceeds (net of the $8,167 of legal fees, expenses and OID) and subsequent to the
three months ended September 30, 2017, the Company received a total of $144,000 net proceeds (net of the $8,167 of legal fees,
expenses and OID) under Note IV (see Note 10). Note IV accrues interest at a rate equal to 12% per annum (interest is guaranteed
for the first twelve months) and has a maturity dates between July 15, 2017 and April 27, 2019. Note IV is convertible any time
after its issuance date and Dominion has the right to convert any or all of Note IV into shares of the Company’s common
stock at a conversion price equal to $3,300 per share, subject to adjustment as described in Note IV. Additionally, under certain
conditions defined in Note IV, it may also be convertible into common stock at a price equal to 62.5% of the lowest VWAP during
the 15 Trading Days immediately prior to the applicable amortization date. In the event that there is an Event of Default or certain
conditions are not met, the conversion price will be adjusted to equal to 55% of the lowest VWAP during the thirty (30) Trading
Days immediately prior to the applicable Conversion Date. Note IV can be prepaid at any time upon five days’ notice to the
Dominion by paying an amount in cash equal to the outstanding principal and interest, and a 20% premium. Subsequent to the funding
of the first tranche the Purchaser and the Company agreed to delay further tranches, until such time as the Purchaser and Company
mutually agree, both as to timing and amount. In connection with the issuances of Note IV, the Company recorded a debt discount
of $669,446 when the notes were entered into, related to the embedded conversion option derivative liability. The amortization
expense related to that discount recorded during the nine months ended September 30, 2017 was $276,963. As the note conversion
includes a “lesser of” pricing provision, a derivative liability of $1,006,446 was recorded when the issuances of
Note IV was entered into. The derivative liability is re-measured at each balance sheet date, the derivative liability balance
for Note IV at September 30, 2017 was $455,521. During the nine months ended September 30, 2017, $161,317 of the outstanding principal
and interest was converted into 6,825,225 shares of common stock. As of September 30, 2017, the outstanding principal and interest
on Note IV was $722,537.

18

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Pursuant
to the Company’s obligations under Notes I, II, III and IV, the Company entered into a Security Agreement with the Purchaser,
pursuant to which the Company granted a lien on all assets of the Company, subject to existing security interests, (the “Collateral”)
for the benefit of the Purchaser, to secure the Company’s obligations under the Note. In the event of a default as defined
in Notes I, II, III and IV, the Purchaser may, among other things, collect or take possession of the Collateral, proceed with
the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

Other
Convertible Debt Financing

On
March 9, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $270,400 (the “Notes”), with the first note
being in the amount of $135,200 (“Note I”) and the second note being in the amount of $135,200 (“Note II”)
with a maturity date of March 9, 2017. Pursuant to Note I, the Company received $125,000 of proceeds, net of original issue discount
of $5,200 and legal fees of $5,000. Note II was initially paid for by the issuance of an offsetting $130,000 secured note issued
by the Lender to the Company (“Secured Note”). The Notes bear an interest rate of 12%; and may be at any time after
180 days of the date of closing converted into shares of Company common stock convertible at the lesser of a 37.5% discount to
the common stock price on the date of the note or a 37.5% discount to the price of our common stock price at the time of conversion.
The Notes also contain certain representations, warranties, covenants and events of default, and increases in the amount of the
principal and interest rates under the Notes in the event of such defaults. In connection with the issuance of Note I, the Company
recorded a debt discount of $125,000, related to the embedded conversion option derivative liability which was fully amortized
during the year ended December 31, 2016. As of December 31, 2016, the outstanding principal and interest on Note I was fully converted
into 40,968 shares of common stock. During the year ended December 31, 2016, the Company received $125,000 pursuant to Note II,
net of original issue discount of $5,200 and legal fees of $5,000. In connection with the issuance of Note II, the Company recorded
a debt discount of $125,000, related to the embedded conversion option derivative liability which was fully amortized as of December
31, 2016. As of September 30, 2017, $129,980 of the outstanding principal and interest on Note II was converted into 51,684 shares
of common stock. As of September 30, 2017, Note II had an outstanding balance of $22,348. As the note conversion includes a “lesser
of” pricing provision, a derivative liability of $306,000 was recorded when Notes were entered into. The derivative liability
is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative
liability balance for Note II at September 30, 2017 was $13,869.

On
April 1, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $270,400 (the “Notes”), with the first note
being in the amount of $135,200 (“Note I”) and the second note being in the amount of $135,200 (“Note II”).
Note I was funded on April 1, 2016, with a maturity date of April 1, 2017, pursuant to Note I, the Company received $125,000 of
net proceeds, net of original issue discount of $5,200 and legal fees of $5,000. Note II was initially paid for by the issuance
of an offsetting $130,000 secured note issued by the Lender to the Company (“Secured Note”). Note II was funded on
August 2, 2016, with a maturity date of April 1, 2017, pursuant to Note II, the Company received $125,000 of net proceeds, net
of original issue discount of $5,200 and legal fees of $5,000. The Notes bear an interest rate of 12%; and may be at any time
after 180 days of the date of closing converted into shares of Company common stock convertible at the lesser of a 37.5% discount
to the common stock price on the date of the note or a 37.5% discount to the price of our common stock price at the time of conversion.
In connection with the issuance of Notes, the Company recorded a debt discount of $250,000, related to the embedded conversion
option derivative liability. The amortization expense related to that discount recorded was $77,859 during the six months ended
June 30, 2017 and the total debt discount recorded has been fully amortized as of June 30, 2017. During the three months ended
June 30, 2017, $27,114 of the outstanding principal and interest on the notes was converted into 402,827 shares of common stock.
As of September 30, 2017, the outstanding principal and interest on the Notes were $286,446. As the note conversion includes a
“lesser of” pricing provision, a derivative liability of $311,756 was recorded when Notes were entered into. The derivative
liability is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note,
the derivative liability balance for the Notes at September 30, 2017 was $177,772.

On
April 28, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $437,500 (the “Notes”), with the first note
being in the amount of $218,750 (“Note I”) and the second note being in the amount of $218,750 (“Note II”).
Note I was funded on April 28, 2016, with a maturity date of April 27, 2017, pursuant to Note I, the Company received $190,000
of net proceeds, net of original issue discount of $8,750 and legal fees of $20,000. Note II was initially paid for by the issuance
of an offsetting $210,000 secured note issued by the Lender to the Company (“Secured Note”). Note II was funded on
September 7, 2016, with a maturity date of April 27, 2017, pursuant to Note II, the Company received $200,000 of net proceeds,
net of original issue discount of $8,750 and legal fees of $10,000. The Notes bear an interest rate of 12%; and may be at any
time after 180 days of the date of closing converted into shares of Company common stock convertible at the lesser of a 37.5%
discount to the common stock price on the date of the note or a 37.5% discount to the price of our common stock price at the time
of conversion. In connection with the issuance of the Notes, the Company recorded a debt discount of $390,000, related to the
embedded conversion option derivative liability. The amortization expense related to that discount recorded was approximately
$143,000 during the three months ended March 31, 2017 and was fully amortized as of March 31, 2017. During the nine months ended
September 30, 2017, $424,426 of the outstanding principal and interest of the notes was converted into 4,455,017 shares of common
stock. As of September 30, 2017, the outstanding principal and interest on the Notes were $38,902. As the note conversion includes
a “lesser of” pricing provision, a derivative liability of $499,800 was recorded when Notes were entered into. The
derivative liability is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion
of the note, the derivative liability balance for the Notes at September 30, 2017 was $27,612.

19

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
June 3, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $624,000 (the “Notes”), with the first note
being in the amount of $312,000 (“Note I”) and the second note being in the amount of $312,000 (“Note II”).
Note I was funded on June 3, 2016, with a maturity date of June 2, 2017, pursuant to Note I, the Company received $285,000 of
net proceeds, net of original issue discount of $12,000 and legal fees of $15,000. Note II was initially paid for by the issuance
of an offsetting $300,000 secured note issued by the Lender to the Company (“Secured Note”). Note II was funded in
two tranches during the year ended December 31, 2016, with a maturity date of June 2, 2017, pursuant to Note II, the Company received
$285,000 of net proceeds, net of original issue discount of $12,000 and legal fees of $15,000. The Notes bear an interest rate
of 12%; and may be at any time after 180 days of the date of closing converted into shares of Company common stock convertible
at the lesser of a 35% discount to the common stock price on the date of the note or a 35% discount to the price of our common
stock price at the time of conversion. The Notes also contain certain representations, warranties, covenants and events of default,
and increases in the amount of the principal and interest rates under the Notes in the event of such defaults. In connection with
the issuance of the Notes, the Company recorded a debt discount of $570,000, related to the embedded conversion option derivative
liability. During the nine months ended September 30, 2017, $301,537 of the outstanding principal and interest of the notes was
converted into 12,383,428 shares of common stock. The amortization expense related to that discount recorded was $282,000 for
the six months ended June 30, 2017 and the total debt discount recorded was fully amortized as of June 30, 2017. As of September
30, 2017, the outstanding principal and interest on the Notes were $246,744. As the note conversion includes a “lesser of”
pricing provision, a derivative liability of $755,690 was recorded when Notes was entered into. The derivative liability is re-measured
at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative liability
balance for the Notes at September 30, 2017 was $153,132.

On
July 5, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $416,000 (the “Notes”), with the first note
being in the amount of $208,000 (“Note I”) and the second note being in the amount of $208,000 (“Note II”)
with a maturity date of July 30, 2017. Pursuant to Note I, the Company received $190,000 of proceeds, net of original issue discount
of $8,000 and legal fees of $10,000. Note II was initially paid for by the issuance of an offsetting $200,000 secured note issued
by the Lender to the Company (“Secured Note”). Pursuant to Note II, the Company received $190,000 of proceeds, net
of original issue discount of $8,000 and legal fees of $10,000 Note II during the three months ended March 31, 2017. The Notes
bear an interest rate of 12%; and may be at any time after 180 days of the date of closing converted into shares of Company common
stock convertible at the lesser of a 37.5% discount to the common stock price on the date of the note or a 37.5% discount to the
price of our common stock price at the time of conversion. The Notes also contain certain representations, warranties, covenants
and events of default, and increases in the amount of the principal and interest rates under the Notes in the event of such defaults.
In connection with the issuance of the Notes, the Company recorded a debt discount of $380,000, related to the embedded conversion
option derivative liability. The amortization expense related to that discount recorded was $282,939 for the nine months ended
September 30, 2017 and the total debt discount recorded was fully amortized as of September 30, 2017. During the nine months ended
September 30, 2017, $200,180 of the outstanding principal and interest of the note was converted into 18,359,790 shares of common
stock. As of September 30, 2017, the outstanding principal and interest on the notes was $262,576. As the note conversion includes
a “lesser of” pricing provision, a derivative liability was also recorded in the amount of $360,552. The derivative
liability at September 30, 2017 for the Notes was $162,957.

On
July 6, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $132,300 (the “Notes”), with the first note
being in the amount of $66,150 (“Note I”) and the second note being in the amount of $66,150 (“Note II”)
with a maturity date of July 7, 2017. Pursuant to Note I, the Company received $60,000 of net proceeds, net of original issue
discount of $3,150 and legal fees of $3,000. Note II was initially paid for by the issuance of an offsetting $63,000 secured note
issued by the Lender to the Company (“Secured Note”). The Notes bear an interest rate of 10%; and maybe converted
into shares of Company common stock, convertible at variable conversion price at a 35% discount of the lowest closing bid price
of the common stock for the 15 trading days prior to conversion. The Notes also contain certain representations, warranties, covenants
and events of default, and increases in the amount of the principal and interest rates under the Notes in the event of such defaults.
In connection with the issuance of Note I, the Company recorded a premium of $35,619 as the note is considered stock settled debt
under ASC 480, which was fully accreted as of September 30, 2016. As of September 30, 2017, the outstanding principal and interest
on the note was $74,419.

20

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
August 1, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of a Convertible Redeemable Note with a principal amount of $52,500 (the “Note”) and maturity date of April 29, 2017,
pursuant to Note, the Company received $50,000 of net proceeds, net of original issue discount of $2,500. The Note bears an interest
rate of 10%; and maybe converted into shares of Company common stock, convertible at variable conversion price at a 37.5% discount
of the three lowest closing bid prices of the common stock for the 20 trading days prior to conversion. The Note also contain
certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest
rates under the Note in the event of such defaults. In connection with the issuance of the note, the Company recorded a premium
of $31,500 as the note is considered stock settled debt under ASC 480, which was fully accreted as of September 30, 2016. During
the three months ended March 31, 2017, $6,250 of the outstanding principal and interest of the note was converted into 8,333 shares
of common stock. As of September 30, 2017, the outstanding principal and interest on the note was $53,600.

On
August 11, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of a Secured Convertible Promissory Note in the aggregate principal amount of up to $330,000, which shall be funded in six tranches,
each amounting to $50,000. The Note has a 10% original issuance discount to offset transaction, diligence and legal costs. The
Note bears an interest rate of 10% and the maturity date for each funded tranche will be 12 months from the date on which the
funds are received by the Company. Then note is convertible into shares of Company’s common stock at a 37.5% discount to
the lowest volume-weighted average price for the Company’s common stock during the 15 trading days immediately preceding
a conversion date. The Note also contain certain representations, warranties, covenants and events of default, and increases in
the amount of the principal and interest rates under the Note in the event of such defaults. In 2016, the Company had received
three of the six tranches amounting to $150,000 of net proceeds, net of the original issue discount of $15,000. The funded tranches
have maturity dates between August 17, 2017 and September 13, 2017. In connection with the issuance of the note, the Company recorded
a premium of $99,000 as the note is considered stock settled debt under ASC 480, which was fully accreted during as of September
30, 2016. During the six months ended June 30, 2017, $132,938 of the outstanding principal and interest of the note was converted
into 609,000 shares of common stock. As of September 30, 2017, the outstanding principal and interest on the note was $45,835.

On
August 17, 2016, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $105,264 (the “Notes”), with the first note
being in the amount of $52,632 (“Note I”) and the second note being in the amount of $52,632 (“Note II”).
Note I was funded on August 17, 2016, with a maturity date of August 17, 2017, pursuant to Note I, the Company received $45,000
of net proceeds, net of original issue discount of $2,632 and legal fees of $5,000. Note II was initially paid for by the issuance
of an offsetting $50,000 secured note issued by the Lender to the Company (“Secured Note”). Note II was funded on
February 17, 2017, with a maturity date of August 17, 2017, pursuant to Note II, the Company received $45,000 of net proceeds,
net of original issue discount of $2,632 and legal fees of $5,000. The Notes bear an interest rate of 10%; and is convertible
into shares of Company common stock at the lesser of a 37.5% discount to the common stock price on the date of the note or a 37.5%
discount to the price of our common stock price at the time of conversion. The Notes also contain certain representations, warranties,
covenants and events of default, and increases in the amount of the principal and interest rates under the Notes in the event
of such defaults. In connection with the issuance of the Notes, the Company recorded a debt discount of $76,189 related to the
embedded conversion option derivative liability. The amortization expense related to that discount recorded was $60,229 for the
six months ended June 30, 2017 and the total debt discount recorded was fully amortized as of June 30, 2017. During the six months
ended June 30, 2017, the remaining balance of the outstanding principal and interest was fully converted into 441,619 shares of
common stock and the note had no outstanding balance as of June 30, 2017. As the note conversion includes a “lesser of”
pricing provision, a derivative liability of $112,277 was recorded when the notes were entered into. The derivative liability
is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion of the note, the derivative
liability balance for the Notes at June 30, 2017 was fully reclassified to equity.

On
November 30, 2016, the Company closed a Securities
Purchase Agreement (“SPA”) with a lender, providing for the purchase of three
Convertible Redeemable Notes in the aggregate principal amount of $183,750 (the “Notes”), with the first note being
in the amount of $52,500 (“Note I”), the second note being in the amount of $52,500 (“Note II”), and the
third note being in the amount of $78,750 (“Note III”). Note I was funded on November 30, 2016, with a maturity
date of December 30, 2017, pursuant to Note I, the Company received $45,000 of net proceeds, net of original issue discount of
$3,150 and legal fees of $3,000. Note II was initially paid for by the issuance of an offsetting
$50,000 secured note issued to the Company by the lender (“Secured Note”), and Note III was initially be paid for
by the issuance of an offsetting $75,000 secured note issued to the Company by the lender. Funding of Note II and Note III is
subject to the mutual agreement of the lender and the Company. The lender is required to pay the principal amount of the Secured
Notes in cash and in full prior to executing any conversions under Note II and Note III. The Notes bear an interest rate of 10%,
and are due and payable on November 30, 2017. The Notes may be converted by the lender at any time into shares of Company’s
common stock (as determined in the Notes) calculated at the time of conversion, except for Note II and Note III, which require
full payment of the Secured Notes by the lender before conversions may be made. The Notes (subject to funding in the case of Note
II and Note III) is convertible into shares of Company’s common stock at a 37.5% discount to the lowest
closing bid price of the common stock 15 prior trading days including the day upon which a notice of conversion is received by
the Company. In connection with the issuance of the note, the Company recorded a premium of $31,500 as the note is considered
stock settled debt under ASC 480, which was fully accreted as of December 31, 2016. As of September 30, 2017, the outstanding
principal and interest on the note was $57,313.

21

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
January 18, 2017, the Company closed
a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase of two Convertible Redeemable Notes
in the aggregate principal amount of $200,000 (the “Notes”), with the first note being in the amount of $100,000 (“Note
I”), and the second note being in the amount of $100,000 (“Note II”). Note I was funded on January 18, 2017,
with the Company receiving $70,000 of net proceeds (net of legal fees and OID). Note II will initially be paid for by the issuance
of an offsetting $88,000 secured note issued to the Company by the lender (the “Secured Note”). The funding of Note
II is subject to the mutual agreement of the lender and the Company. The lender is required to pay the principal amount of the
Secured Note in cash and in full prior to executing any conversions under Note II. The Notes bear an interest rate of 10%, and
are due and payable on January 13, 2018. The Note may be converted by the lender at any time into shares of Company’s common
stock at a price equal to the lesser of a 37.5% discount to the common stock price on the date of the note or a 37.5% discount
of the lowest trading price for the Company’s common stock 20 days prior trading days
including the day upon which a notice of conversion is received by the Company. The Notes also contain certain representations,
warranties, covenants and events of default, and increases in the amount of the principal and interest rates under the Notes in
the event of such defaults. In connection with the issuance of Note I, the Company recorded a debt discount of $70,000 related
to the embedded conversion option derivative liability. The amortization expense related to that discount recorded was approximately
$60,794 for the nine months ended September 30, 2017 and the total debt discount recorded was fully amortized as of September
30, 2017. During the three months ended September 30, 2017, $25,764 of the outstanding principal and interest of the note was
converted into 3,445,000 shares of common stock. As of September 30, 2017, the outstanding principal and interest on Note I was
$81,222. As the note conversion includes a “lesser of” pricing provision, a derivative liability of $99,742 was recorded
when Note I was entered into. The derivative liability is re-measured at each balance sheet date and reclassified to equity on
a pro-rata basis upon conversion of the note, the derivative liability balance for the Notes at September 30, 2017 was $60,251.

On
January 31, 2017, the Company closed
a Securities Purchase Agreement (“SPA”) with a lender, dated January 30, 2017, providing for the purchase of a Secured
Convertible Promissory Note (the “Note”), in the aggregate principal amount of $412,500. The Note was fully funded
as of March 31, 2017, with the Company receiving $375,000 of net proceeds (net of OID). The Note has a 10% original issuance discount
to offset transaction, diligence and legal costs. The Note bears an interest rate of 10% and matures12 months after the tranches
are funded. The Note may be converted by the lender at any time into shares of Company’s common stock at a price equal to
62.5% of the lowest closing bid price for the Company’s common stock during the 20 trading days immediately preceding a
conversion date. In connection with the issuance of the note, the Company recorded a premium of $247,500 as the note is
considered stock settled debt under ASC 480, which was fully accreted as of March 31, 2017. During the three months ended September
30, 2017, $85,916 of the outstanding principal and interest of the note was converted into 13,025,000 shares of common stock.
As of September 30, 2017, the outstanding principal and interest on the note was $351,334.

On
February 15, 2017,
the Company entered into an agreement with a lender, providing for the issuance of
a non-cash Convertible Redeemable Note with the principal amount of $15,000 (the
“Note”) as penalty interest. The Note bears an interest rate of 10%, and matures on February 17, 2018. The Note may
be converted by the lender at any time into shares of Company’s common stock at a stock at a price equal to the lesser
of a 37.5% discount to the common stock price on the date of the note or a 37.5% discount of
the lowest trading price for the Company’s common stock 15 days prior trading days including the day upon which a notice
of conversion is received by the Company. The Note also contain certain representations, warranties, covenants and events
of default, and increases in the amount of the principal and interest rates under the Notes in the event of such defaults. In
connection with the issuance of the Note, the Company recorded a debt discount of $8,976 related to the embedded conversion option
derivative liability. The amortization expense related to that discount recorded was $6,015 for the nine months ended September
30, 2017. As of September 30, 2017, the outstanding principal and interest on the Note was $15,925. As the note conversion includes
a “lesser of” pricing provision, a derivative liability of $8,976 was recorded when the Note was entered into. The
derivative liability is re-measured at each balance sheet date and reclassified to equity on a pro-rata basis upon conversion
of the note, the derivative liability balance for the Note at September 30, 2017 was $9,652.

On
March 14, 2017, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $104,000 (the “Notes”), with the first note
being in the amount of $52,000 (“Note I”) and the second note being in the amount of $52,000 (“Note II”)
with a maturity date of March 14, 2018. Note I was funded on March 14, 2017, with the Company receiving $47,500 of proceeds, net
of OID of $2,000 and legal fees of $2,500. Note II was initially paid for by the issuance of an offsetting $52,000 secured note
issued by the lender to the Company (“Secured Note”). Note II was funded on May 3, 2017, with the Company receiving
$47,500 of proceeds, net of OID of $2,000 and legal fees of $2,500. The Notes bear an interest rate of 12%; and may converted
be at any time after 180 days of the date of closing converted into shares of Company common stock convertible at the lesser of
a 37.5% discount to the common stock price on the date of the note or a 37.5% discount to the price of our common stock price
at the time of conversion. The Notes also contain certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates under the Notes in the event of such defaults. In connection with the issuance
of Notes, the Company recorded a debt discount of $86,964 related to the embedded conversion option derivative liability. The
amortization expense related to that discount recorded was approximately $37,298 during the nine months ended September 30, 2017.
During the three months ended September 30, 2017, $5,324 of the outstanding principal and interest of the note was converted into
851,814 shares of common stock. As of September 30, 2017, the outstanding principal and interest on the Notes was $104,711. As
the note conversion includes a “lesser of” pricing provision, a derivative liability of $97,555 was recorded when
the Notes were entered into. The derivative liability is re-measured at each balance sheet date and reclassified to equity on
a pro-rata basis upon conversion of the notes, the derivative liability balance for the Notes at September 30, 2017 was $65,924.

22

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
March 24, 2017, the Company closed a Securities
Purchase Agreement (“SPA”) with a lender, providing for the purchase of two Convertible Redeemable Notes in the aggregate
principal amount of $89,150 (the “Notes”), with the first note being
in the amount of $44,575 (“Note I”), and the second note being in the
amount of $44,575 (“Note II”). Note I was funded on March 27, 2017, with
the Company receiving $35,000 of net proceeds (net of legal fees and OID). Note II
will initially be paid for by the issuance of an offsetting $39,250 secured note
issued to the Company by the lender (the “Secured Note”). The funding of Note II is subject to the mutual agreement
of the lender and the Company. The lender is required to pay the principal amount of the Secured Note in cash and in full prior
to executing any conversions under Note II. The Notes bear an interest rate of 10%, and are due and payable December 24,
2017. The Note may be converted by the lender at any time into shares of Company’s
common stock at a price equal to 62.5% of the lowest closing bid price for the Company’s common stock during the 20 days
prior trading days including the day upon which a notice of conversion is received by the Company. In connection with the
issuance of the note, the Company recorded a premium of $26,746 as the note is considered stock settled debt under ASC 480, which
was fully accreted as of March 31, 2017. As of September 30, 2017, the outstanding principal and interest on the note was $46,804.

On
April 10, 2017, the Company closed a Securities Purchase Agreement (“SPA”) with a lender
providing for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $77,792 (the “Notes”),
with the first note being in the amount of $38,896 (“Note I”), and the second note being in the amount of $38,896
(“Note II”). Note I was funded April 10, 2017, with the Company receiving $34,250 of net proceeds (net of original
issue discount). Note II will initially be paid for by the issuance of an offsetting $34,250 secured note issued to the Company
by the lender (the “Secured Note”). The funding of Note II is subject
to the mutual agreement of the lender and the Company. The lender
is required to pay the principal amount of the Secured Note in cash and in full prior to executing any conversions under
Note II. The Notes bear an interest rate of 10%, and are due and payable on January 10, 2018. The Notes may be converted by the
lender at any time into shares of Company’s common stock (as determined in
the Notes) calculated at the time of conversion, except for Note II, which requires full payment of the Secured Note by the lender
before conversions may be made. The Notes (subject to funding in the case of Note II) may be converted by
the lender at any time into shares of Company’s common stock at a price equal to 62.5% of the lowest closing bid price for
the Company’s common stock during the 20 days prior trading days including the day upon which a notice of conversion is
received by the Company. In connection with the issuance of the note, the Company recorded a premium of $23,338 as the
notes is considered stock settled debt under ASC 480, which was fully accreted as of June 30, 2017. As of September 30, 2017,
the outstanding principal and interest on the note was $40,841.

On
April 17, 2017, the Company closed a Securities Purchase Agreement (“SPA”) with a lender,
providing for the purchase of a Secured Convertible Promissory Note in the aggregate principal amount of up to $165,000 (the “Note”),
with the first tranche funded being in the amount of $50,000. Subsequent tranches will be delivered to the Company approximately
bi-weekly and at the sole discretion of the lender. During the six months ended September
30, 2017, all three tranches were funded with the Company receiving $150,000 of net proceeds
(net of 10% OID). The Note bears an interest rate of 10%, which is payable in the Company’s common stock based on
the conversion formula (as defined below), and the maturity date for each funded tranche will be 12 months from the date on which
the funds are received by the Company. The Note may be converted by the lender at
any time into shares of Company’s common stock at a 37.5% discount off the lowest closing bid price for the Company’s
common stock during the 20 trading days immediately preceding a conversion date. In connection with the issuance of the note,
the Company recorded a premium of $99,000 as the note is considered stock settled debt under ASC 480, which was fully accreted
as of September 30, 2017. As of September 30, 2017, the outstanding principal and interest on the note was $170,929.

On
May 2, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender,
providing for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $64,205 (the “Notes”),
with the first note being in the amount of $32,102 (“Note I”), and the second note being in the amount of $32,102
(“Note II”). Note I was funded on May 3, 2017 with the Company receiving, $25,000 of net proceeds (net of OID and
legal fees) and Note II was funded subsequent to the three months ended September 30, 2017, with the Company receiving, $26,250
of net proceeds (net of OID and legal fees). The Company received an aggregate amount of $51,250 of net proceeds (net of OID and
legal fees). The Notes bear an interest rate of 10%, and are due and payable on February 2, 2018. The Notes may be converted by
the lender at any time into shares of Company’s common stock at a price equal
to 62.5% of the lowest closing bid price of the common stock for the 20 prior trading days including the day upon which a notice
of conversion is received by the Company. In connection with the issuance of the note, the Company recorded a premium of $19,261
as the notes is considered stock settled debt under ASC 480, which was fully accreted as of June 30, 2017. As of September 30,
2017, the outstanding principal and interest on the note was $33,440.

23

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
May 22, 2017, the Company entered into a Securities Purchase Agreement with a lender
for the purchase of a Convertible Redeemable Note in the aggregate principal amount of $50,000 (the “Note”). The Note
was funded on May 25, 2017, with the Company receiving $45,000 of net proceeds (net of OID and legal fees). The Note bears an
interest rate of 10%, and is due and payable on May 22, 2018. The Note may be converted by the lender
at any time into shares of Company’s common stock (as determined in the Note) at a price equal to 65% of the lowest
closing bid price of the common stock for the 20 prior trading days including the day upon which a notice of conversion is received
by the Company. In connection with the issuance of the note, the Company recorded a premium of $26,923 as the note is considered
stock settled debt under ASC 480, which was fully accreted as of June 30, 2017. As of September 30, 2017, the outstanding principal
and interest on the note was $51,771.

On
May 23, 2017, the Company entered into a Securities Purchase Agreement with a lender
for the purchase of a Convertible Promissory Note in the aggregate principal amount of $53,000 (the “Note”). The Note
was funded on May 23, 2017, with the Company receiving $50,000 of net proceeds (net of fees). The Note bears an interest rate
of 8%, and is due and payable on May 23, 2018. The Note may be converted by the lender at
any time into shares of Company’s common stock (as determined in the Note) at a price equal to 65% of the average of the
lowest five closing bid prices of the common stock for the 10 prior trading days upon which a notice of conversion is received
by the Company. In connection with the issuance of the note, the Company recorded a premium of $28,538 as the note is considered
stock settled debt under ASC 480, which was fully accreted as of June 30, 2017. As of September 30, 2017, the outstanding principal
and interest on the note was $54,502.

On
June 6, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender,
providing for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $104,000 (the “Notes”),
with the first note being in the amount of $52,000 (“Note I”), and the second note being in the amount of $52,000
(“Note II”). Note I was funded on June 6, 2017 and Note II was funded on Augusts 10, 2017, with the Company receiving
$47,500 of net proceeds (net of OID and legal fees) for each note and aggregate net proceeds of $95,000. The Notes bear an interest
rate of 12%, and are due and payable on June 6, 2018. The Notes may be converted by the lender
at any time into shares of Company’s common stock at a price equal to 62.5% of the lowest closing bid price of the
common stock for the 15 prior trading days including the day upon which a notice of conversion is received by the Company. In
connection with the issuance of the Notes, the Company recorded a premium of $62,400 as the note is considered stock settled debt
under ASC 480, which was fully accreted upon issuance of the Notes. As of September 30, 2017, the outstanding principal and interest
on the note was $107,120.

On
July 17, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender for the purchase of
a Convertible Promissory Note in the aggregate principal amount of $53,000 (the “Note”). The Note has been funded,
with the Company receiving $50,000 of net proceeds (net of fees). The Note bears an interest rate of 8%, and is due and payable
on April 30, 2018. The Note may be converted by the lender at any time into shares of Company’s common stock (as determined
in the Note) at a price equal to 65% of the average of the lowest five closing bid prices of the common stock for the 10 trading
days ending on the latest complete trading day prior to the conversion date. In connection with the issuance of the note, the
Company recorded a premium of $28,538 as the note is considered stock settled debt under ASC 480, which was fully accreted upon
issuance of the Note. As of September 30, 2017, the outstanding principal and interest on the note was $53,883.

On
August 8, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender for the purchase of
a Convertible Promissory Note in the aggregate principal amount of $55,000 (the “Note”). The Note has been funded,
with the Company receiving $50,000 of net proceeds (net of fees). The Note bears an interest rate of 12%, and is due and payable
on April 8, 2018. The Note may be converted by the lender at any time into shares of Company’s common stock (as determined
in the Note) at a price equal to 62.5% of the lowest closing bid prices of the common stock for the 20 prior trading days including
the day upon which a notice of conversion is received by the Company. In connection with the issuance of the note, the
Company recorded a premium of $33,000 as the note is considered stock settled debt under ASC 480, which was fully accreted upon
issuance of the Notes. As of September 30, 2017, the outstanding principal and interest on the note was $56,100.

On
August 11, 2017, the Company closed a Securities Purchase Agreement (“SPA”) with a lender, providing for the purchase
of two Convertible Redeemable Notes in the aggregate principal amount of $94,500 (the “Notes”), with the first note
being in the amount of $47,250 (“Note I”) and the second note being in the amount of $47,250 (“Note II”)
with a maturity date of August 11, 2018. Note I was funded on September 11, 2017 and Note II was funded subsequent to the three
months ended September 30, 2017 with the Company receiving, for each note, net proceeds of $40,000 (net of OID and legal fees)
and an aggregate net proceeds of $80,000 (net of OID and legal fees). The Notes bear an interest rate of 12%; and may converted
be at any time into shares of Company common stock, convertible at the lesser of a 37.5% discount to the common stock price on
the date of the note or a 37.5% discount to the price of our common stock price at the time of conversion. The Notes also contain
certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest
rates under the Notes in the event of such defaults. In connection with the issuance of note, the Company recorded a debt discount
of $30,699 related to the embedded conversion option derivative liability. The amortization expense related to that discount recorded
was approximately $4,205 during the three months ended September 30, 2017. As of September 30, 2017, the outstanding principal
and interest on the Notes was $48,198. As the note conversion includes a “lesser of” pricing provision, a derivative
liability of $30,699 was recorded when the Notes were entered into. The derivative liability is re-measured at each balance sheet
date and reclassified to equity on a pro-rata basis upon conversion of the notes, the derivative liability balance for the note
at September 30, 2017 was $29,390.

24

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
August 22, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender for the purchase of
a Convertible Promissory Note in the aggregate principal amount of $53,000 (the “Note”). The Note has been funded,
with the Company receiving $50,000 of net proceeds (net of fees). The Note bears an interest rate of 8%, and is due and payable
on May 30, 2018. The Note may be converted by the lender at any time into shares of Company’s common stock (as determined
in the Note) at a price equal to 65% of the average of the lowest five closing bid prices of the common stock for the 10 trading
days ending on the latest complete trading day prior to the conversion date. In connection with the issuance of the note, the
Company recorded a premium of $28,538 as the note is considered stock settled debt under ASC 480, which was fully accreted upon
issuance of the Note. As of September 30, 2017, the outstanding principal and interest on the note was $53,530.

On
September 11, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender,
providing for the purchase of a Secured Convertible Promissory Note in the aggregate principal amount of up to $137,500
(the “Note”), with the first tranche funded on September 15, 2017, with the Company receiving $75,000 of
net proceeds (net of OID). A second tranche was funded subsequent to the three months ended September 30, 2017, with the
Company receiving $50,000 of net proceeds (net of OID) (see Note 10). The Note has a 10%
original issuance discount to offset transaction, diligence and legal costs. The Note bears an interest rate of 10% and matures12
months after the tranches are funded. The Note may be converted by the lender at any time into shares of Company’s common
stock at a price equal to 62.5% of the lowest closing bid price for the Company’s common stock during the 20 trading days
immediately preceding a conversion date. In connection with the issuance of the note, the Company recorded a premium of
$49,092 as the note is considered stock settled debt under ASC 480, which was fully accreted upon issuance of the note. As of
September 30, 2017, the outstanding principal and interest on the note was $82,161.

On
September 12, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender,
providing for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $104,000 (the “Notes”),
with the first note being in the amount of $52,000 (“Note I”), and the second note being in the amount of $52,000
(“Note II”). Note I was funded on September 12, 2017 and Note II was funded on September 27, 2017, with the Company
receiving $47,500 of net proceeds (net of OID and legal fees) for each note and aggregate net proceeds of $95,000. The Notes bear
an interest rate of 12%, and are due and payable on September 12, 2018. The Notes may be converted by the lender
at any time into shares of Company’s common stock at a price equal to 62.5% of the lowest closing bid price of the
common stock for the 15 prior trading days including the day upon which a notice of conversion is received by the Company. In
connection with the issuance of the Notes, the Company recorded a premium of $62,400 as the note is considered stock settled debt
under ASC 480, which was fully accreted upon issuance of the Notes. As of September 30, 2017, the outstanding principal and interest
on the note was $104,520.

Other
Financings

On
July 9, 2012, the Company issued a Secured Promissory Note (the “H&K Note”) in the principal amount of $849,510
to Holland & Knight LLP (“Holland & Knight”), its external legal counsel, in support of amounts due and owing
to Holland & Knight as of June 30, 2012. The H&K Note is non-interest bearing, and principal on the H&K Note is due
and payable as soon as practicably possible by the Company. The Company has agreed to remit payment against the H&K Note immediately
upon each occurrence of any of the following events: (a) completion of an acquisition or disposition of any of the Company’s
assets or stock or any of the Company’s subsidiaries’ assets or stock with gross proceeds in excess of $750,000, (b)
completion of any financing with gross proceeds in excess of $1,500,000, (c) receipt of any revenue in excess of $750,000 from
the licensing or development of any of the Company’s or the Company’s subsidiaries’ products, or (d) any liquidation
or reorganization of the Company’s assets or liabilities. The amount of payment to be remitted by the Company shall equal
one-third of the gross proceeds received by the Company upon each occurrence of any of the above events, until the principal is
repaid in full. If the Company receives $3,000,000 in gross proceeds in any one financing or licensing arrangement, the entire
principal balance shall be paid in full. The H&K Note was secured by substantially all of the Company’s assets pursuant
to a security agreement between the Company and Holland & Knight dated July 9, 2012. In conjunction with the TCA Purchase
Agreement and the Boeing License Agreement, Holland & Knight agreed to terminate its security interest. As of September 30,
2017, the Company had repaid $588,301 of the H&K Note and the outstanding balance was $262,209 which is included in notes
payable on the consolidated balance sheet.

25

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
March 16, 2016, the Company entered into a factoring agreement with a lender for $105,000 to fund working capital. The Company
also paid $3,150 of origination fees. The agreement requires daily repayments of $862 for an eight-month term, with the total
amount repaid of $144,900. As of September 30, 2016, the Company has repaid the outstanding principal and interest balance of
this note. On June 7, 2016, the Company entered into a second factoring agreement with a lender for $51,000 to fund working capital.
The Company also paid $1,020 of origination fees. The agreement requires daily repayments of $419 for an eight-month term, with
the total amount to be repaid $70,380. As of December 31, 2016, the Company has repaid the outstanding principal and interest
balance of this note. On September 9, 2016, the Company entered into a third factoring agreement with a lender for $105,000 to
fund working capital. The Company also paid $2,100 of origination fees. The agreement requires daily repayments of $862 for an
eight-month term, with the total amount to be repaid $144,900. As of March 31, 2017, the Company has repaid the outstanding principal
and interest balance of this note. On November 17, 2016, the Company entered into a fourth factoring agreement with a lender for
$100,000 to fund working capital. The Company also paid $2,000 of origination fees. The agreement requires daily repayments of
$821 for an eight-month term, with the total amount to be repaid $138,000. As of June 30, 2017, the Company has repaid the full
amount of the outstanding principal and interest balance of this note. On March 7, 2017, the Company entered into a fifth factoring
agreement with a lender for $105,000 to fund working capital. The Company also paid $2,100 of origination fees. The agreement
requires daily repayments of $1,034 for four and a half-month term, with the total amount to be repaid $144,900. During the nine
months ended September 30, 2017, the Company has repaid the full amount of the outstanding principal and interest balance of this
note. On May 8, 2017, the Company entered into a sixth factoring agreement with a lender for $120,000 to fund working capital.
The Company also paid $2,400 of origination fees. The agreement requires daily repayments of $1,250 for four and a half-month
term, with the total amount to be repaid $166,200. During the nine months ended September 30, 2017, the Company has repaid a total
amount of $123,713 of the total outstanding balance of the note and $38,874, remained outstanding which is included in notes payable
on the consolidated balance sheet.

On
May 2, 2016, the Company, through its wholly owned subsidiary, ENG entered into a revolving line of credit (the “Line”)
with California Bank of Commerce (“CBC”). The terms of the Line allow ENG to borrow against its accounts receivable
and inventory to manage its project based working capital requirements. The $350,000 Line has a maturity date of May 5, 2018 and
borrowings under the Line bear interest at the Wall Street Journal Prime Rate plus 1.5% (currently 5.0%). The Company has provided
a guaranty of the Line to CBC. The Line also contains certain representations, warranties, covenants and events of default, including
the requirement to maintain specified financial ratios. ENG currently meets all such ratios. Breaches of any of these terms could
limit ENG’s ability to borrow under the Line and result in increases in the interest rate under the Line. As of September
30, 2017, $250,000 was drawn under the Line.

During
the year ended December 31, 2016, the Company issued four separate convertible notes (the “Notes”) to a consultant,
three of the notes had the principal amount of $20,000 each and the fourth had a principal amount of $22,500, for an aggregate
principal amount of $82,500 with maturity dates between April 27, 2017 and August 27, 2017, pursuant to a consulting agreement.
The Notes bear interest at 8% per annum and are convertible at a 37.5% discount to lowest closing bid price in the 15 trading
days prior to conversion. In connection with the issuance of the Notes, the Company recorded a total premium of $49,500 as the
notes are considered stock settled debt under ASC 480, which was fully accreted as of December 31, 2016. During the nine months
ended September 30, 2017, $36,716 of the outstanding principal and interest on Notes were converted into 3,468,233 shares of common
stock. As of September 30, 2017, the outstanding principal and interest of the Notes was $20,834.

In
December 2015, the Company leased a specialized equipment under
leases classified as capital leases. The interest rate related to the lease obligation is 8.1% and is amortized over 4 years with
the maturity date of November 30, 2019. As of September 30, 2017, the outstanding principal and interest on the lease obligation
was approximately $23,000, of which approximately $13,000 is classified under notes payable and approximately $10,000 is classified
under long-term loan payable on the consolidated balance sheet.

In
December 2015 and August 2016, the Company issued two separate
convertible notes (the “Notes”) in relation to the acquisitions of Thermomedics and ENG. These Notes were amended
in the beginning of 2017 and pursuant to the amended terms, are no longer convertible notes. As of June 30, 2017, the remaining
outstanding principal and interest balance on one of the notes was paid in full, from the proceeds on sale of non-controlling
interest (see Note 3). As of September 30, 2017, the total outstanding principal and interest on the remaining note was $58,528
which is included in notes payable on the consolidated balance sheet.

The
Company has approximately $3.9 million of debt which are past maturity and subject to conversion as of September 30, 2017.

Embedded
Conversion Option Derivatives

Due
to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented
as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option
derivative instruments using the Monte Carlo option pricing model using the share prices of the Company’s stock on the dates
of valuation and using the following ranges for volatility, expected term and the risk-free interest rate at each respective valuation
date, no dividend has been assumed for any of the periods:

Note
Inception Date

September
30, 2017

December
31, 2016

Volatility

195
- 438 %

147
- 472 %

360

%

Expected
Term

0.4
- 1.50 years

0.17
– 1.13 years

0.01
- 1.34 years

Risk
Free Interest Rate

0.21
– 1.06 %

0.50
– 76.00 %

0.45

%

26

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

The
following reflects the initial fair value on the note inception dates and changes in fair value through September 30, 2017:

Balance,
December 31, 2016

$

4,284,264

Note
inception date fair value allocated to debt discount

472,097

Note
inception date fair value allocated to other expense

40,332

Reclassification
of derivative liability to equity upon debt conversion

(2,245,109

)

Change
in fair value

62,900

Embedded
conversion option liability fair value at September 30, 2017

$

2,614,484

Fair
Value Measurements

We
currently measure and report at fair value the liability for embedded conversion option derivatives. The fair value liabilities
for price adjustable convertible debt instruments have been recorded as determined utilizing the Monte Carlo option pricing model
as previously discussed. The following tables summarize our financial assets and liabilities measured at fair value on a recurring
basis as of December 31, 2016 and September 30, 2017:

On
January 30, 2017, the Company filed the First Amendment to the Company’s Third Amended and Restated Certificate of Incorporation
with the State of Delaware, to increase the Company’s authorized capital stock from 3.9 billion shares to 20 billion shares
(19.995 billion common) and to change the par value of the Company’s Common Stock from $0.001 to $0.0001. On
May 19, 2017, the Company filed the Second Amendment to the Third Amended and Restated
Certificate of Incorporation, as amended, with the State of Delaware, to implement
a 1-for-3,000 reverse stock split of the Company’s outstanding Common Stock,
which became effective on May 23, 2017. The reverse stock split affected the outstanding Common
Stock as well as all Common Stock underlying convertible notes, warrants, convertible preferred stock and stock options
outstanding immediately prior to the reverse stock split. The number of authorized shares was not adjusted. All share and per
share amounts in the accompanying historical consolidated financial statements have been adjusted retroactively to reflect the
change in the par value of the Common Stock and the 1-for-3,000 reverse stock split.

Conversion
of Convertible Notes

During
the three and nine months ended September 30, 2017, approximately 72.7 million and 82.7 million shares were issued, respectively,
in connection with conversion of approximately $0.6 million and $1.9 million of convertible promissory notes, respectively (see
Note 4).

Sale
of Non-Controlling Interest

During
the quarter ended June 30, 2017, the Company issued 1,300,000 shares of the Company’s common stock as a fee in relation
to the sale of a non- controlling interest (see Note 3) with grant date fair value of $78,000.

27

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Series
I and Series II Preferred Stock

On
September 30, 2013, the Board of Directors authorized and in November 2013, the Company filed with the State of Delaware, a Certificate
of Designations of Preferences, Rights and Limitations of Series I Preferred Stock. The Series I Preferred Stock ranks junior
to the Company’s Series F Preferred Stock and to all liabilities of the Company and is senior to the Common Stock and any
other preferred stock. The Series I Preferred Stock has a stated value per share of $1,000, a dividend rate of 6% per annum, voting
rights on an as-converted basis and a conversion price equal to the closing bid price of the Company’s Common Stock on the
date of issuance. The Series I Preferred Stock is required to be redeemed (at stated value, plus any accrued dividends) by the
Company after three years or any time after one year, the Company may at its option, redeem the shares subject to a ten-day notice
(to allow holder conversion). The Series I Preferred Stock is convertible into the Company’s Common Stock, at stated value
plus accrued dividends, at the closing bid price on September 30, 2013, any time at the option of the holder and by the Company
in the event that the Company’s closing stock price exceeds 400% of the conversion price for twenty consecutive trading
days. The Company has classified the Series I Preferred Stock as a liability in the consolidated balance sheet due to the mandatory
redemption feature. The Series I Preferred Stock has voting rights equal to the number of shares of Common Stock that Series I
Preferred Stock is convertible into, times twenty-five. This provision gave the holders of Series I Preferred Stock voting control
in situations requiring shareholder vote.

On
November 5, 2013, the Company filed an Amended and Restated Certificate of Designation of Series I Preferred Stock (the “Amended
Certificate of Designation”). The Amended Certificate of Designation was filed to clarify and revise the mechanics of conversion
and certain conversion rights of the holders of Series I Preferred Stock. No other rights were modified or amended in the Amended
Certificate of Designation. On January 8, 2015, the Company filed an amendment to the Amended Certificate of Designation to increase
the authorized shares of Series I Convertible Preferred Stock from 1,000 shares to 2,500 shares. No other terms were modified
or amended in the Amended Certificate of Designation.

On
July 25, 2016, the Board authorized a Certificate of Designations of Preferences, Rights and Limitations of Series II Convertible
Preferred Stock. The Certificate was filed with the State of Delaware Secretary of State on July 25, 2016. The Series II Preferred
ranks: (a) senior with respect to dividends and right of liquidation with the common stock; (b) pari passu with respect to dividends
and right of liquidation with the Company’s Series I Preferred and Series J Convertible Preferred Stock; and (c) junior
to all existing and future indebtedness of the Company. The Series II Preferred has a stated value per share of $1,000, subject
to adjustment as provided in the Certificate (the “Stated Value”), and a dividend rate of 6% per annum of the Stated
Value. As with the Series I Preferred, the Series II Preferred has 25 votes per common share equivalent. The Series II Preferred
is subject to redemption (at Stated Value, plus any accrued, but unpaid dividends (the “Liquidation Value”)) by the
Company no later than three years after a Deemed Liquidation Event and at the Company’s option after one year from the issuance
date of the Series II Preferred, subject to a ten-day notice (to allow holder conversion). The Series II Preferred is convertible
at the option of a holder or if the closing price of the common stock exceeds 400% of the Conversion Price for a period of twenty
consecutive trading days, at the option of the Company. Conversion Price means a price per share of the common stock equal to
100% of the lowest daily volume weighted average price of the common stock during the subsequent 12 months following the date
the Series II Preferred was issued.

From
September 30, 2013 through April 6, 2016, the Company issued 2,025 shares of Series I Preferred Stock to its officers, directors
and management for management and director compensation and payment of deferred obligations. Each of the Series I preferred is
convertible into the Company’s Common Stock, at stated value plus accrued dividends, at the closing bid price on the issuance
date, any time at the option of the holder and by the Company in the event that the Company’s closing stock price exceeds
400% of the conversion price for twenty consecutive trading days. The Series I Preferred Stock has voting rights equivalent to
twenty-five votes per common share equivalent.

On
August 11, 2016, the Board of PositiveID agreed to exchange 2,025 shares of its Series I Preferred, which have a stated value
of $2,025,000 and redemption value of $2,261,800, for 2,262 shares of Series II Preferred, which have a stated value of $2,262,000.
Pursuant to the Exchange each existing holder of Series I Preferred exchanged their Series I Preferred shares for Series II Preferred
shares having equivalent per share stated value, maintaining the same voting rights as they had as holders of the Series I Preferred.
The Series II have an aggregate stated value equivalent to the redemption value of the Series I at the exchange date. Both the
Series I Preferred and the Series II Preferred have a stated value per share of $1,000, and a dividend rate of 6% per annum. All
shares of Series I Preferred previously issued have become null and void and any and all rights arising thereunder have been extinguished.
The Series II Preferred is only forfeitable after the exchange date up to January 1, 2019 upon termination for cause and is subject
to acceleration in the event of conversion, redemption and certain events.

Accounting
guidance under ASC 718 dictates that the incremental difference in fair value of Series II and Series I should be recorded as
stock-based compensation expense. As a result of the independent valuation performed, we have recorded the Series II at the fair
value of $2,306,345 at the date of issuance. The Series I had a fair value of $281,345, resulting in a charge of $2,025,000 recorded
as stock based compensation in 2016. Additionally, the Series I liability was reclassified to additional paid-in-capital.

28

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
March 29, 2017, the Company, filed a Certificate of Elimination (the “Certificate of Elimination”) for its Series
I Convertible Preferred Stock (“Series I”) with the Delaware Secretary of State to eliminate from its Third Amended
and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), all references to the
Company’s Series I. No shares of the Series I were issued or outstanding upon filing of the Certificate of Elimination.

On
March 29, 2017, the Company filed an Amended Restated Certificate of Designations of Preferences, Rights and Limitations of Series
II Convertible Preferred Stock (the “Amended Certificate of Designation”). The Amended Certificate of Designation
was filed to increase the authorized shares of Series II Convertible Preferred Stock from 3,000 shares to 4,000 shares. No other
terms were modified or amended in the Amended Certificate of Designation.

On
March 29, 2017, the Company issued shares of Series II Preferred as follows: (i)
50 shares of Series II Preferred were issued to each of three independent board members as a component of their 2017 compensation
(150 shares total); and (ii) 685 shares of Series II Preferred were issued to the Company’s management as a component of
their 2016 incentive compensation at a stated value of $1,000 per share. These Series II Preferred shares are only forfeitable
up to January 1, 2019 upon termination for cause and is subject to acceleration in the event of conversion, redemption and certain
events. In connection with the issuance of the 835 Series II Preferred shares, the Company charged $841,594 to stock based compensation
expense in 2017 (which is $10,000 less than the total cost as $10,000 was accrued in fiscal 2016) to reflect the Series II Preferred
fair value of $1,020 per share. As of September 30, 2017, 3,097 shares of Series II were issued and outstanding.

Series
J Preferred Stock

On
December 4, 2015, the Board of Directors authorized and on December 7, 2015, the Company filed with the State of Delaware, a Certificate
of Designations of Preferences, Rights and Limitations of Series J Preferred Stock where 1,700 shares of Series J Preferred Stock
were authorized. The Series J Preferred Stock ranks; (a) senior with respect to dividends and right of liquidation with the Company’s
common stock (b) pari passu with respect to dividends and right of liquidation with the Company’s Series I Convertible Preferred
Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company.
Without the prior written consent of Holders holding a majority of the outstanding shares of Series J Preferred Stock, the Company
may not issue any Preferred Stock that is senior to the Series J Preferred Stock in right of dividends and liquidation. At any
time after the date of the issuance of shares of Series J Preferred Stock, the Corporation will have the right, at the Corporation’s
option, to redeem all or any portion of the shares of Series J Preferred Stock at a price per share equal to 100% of the $1,000
per share stated value of the shares being redeemed. Series J Preferred Stock is not entitled to dividends, interest and voting
rights. The Series J Preferred Stock is convertible into the Company’s common stock, at stated value, at a conversion price
equal to 100% of the arithmetic average of the VWAP of the common stock for the fifteen trading days prior to the six-month anniversary
of the Issuance Date.

On
August 25, 2016, PositiveID completed the acquisition and entered into an agreement with Sanomedics and Thermomedics (the “August
Agreement”), which amends certain terms of the Purchase Agreement and terminates the Control Agreement. As a result, the
125 shares of Preferred Series J stock originally issued shall be released from escrow as follows: 71 shares to Sanomedics and
54 shares returned to the Company’s treasury. As of September 30, 2017, 71 shares of Series J were issued and outstanding.

Warrants

From
time to time the Company issues warrants both for compensatory purposes to consultants and advisors, and to financial institutions
in conjunction with financing activities. No warrants were issued during the nine months ended September 30, 2017.

As
of September 30, 2017, 890 warrants to purchase the Company’s common stock have been granted outside of the Company’s
plans and remain outstanding as of September 30, 2017. These warrants were granted at exercise prices in excess of $9.00 per share,
are fully vested and are exercisable for a period of five years from the date of grant.

Stock
Option Plans

On
August 26, 2011, the Company’s stockholders approved and adopted the PositiveID Corporation 2011 Stock Incentive Plan (the
“2011 Plan”). The 2011 Plan provides for awards of incentive stock options, nonqualified stock options, restricted
stock awards, performance units, performance shares, SARs and other stock-based awards to employees and consultants. Under the
2011 Plan, up to 1 million shares of common stock may be granted pursuant to awards. Approximately 1.0 million remaining shares
may be granted under the 2011 Plan. Awards to employees under the Company’s stock option plans generally vest over a two-year
period, with pro-rata vesting upon the anniversary of the grant. Awards of options have a maximum term of ten years and the Company
generally issues new shares upon exercise. As of September 30, 2017, the Company had 1,207 stock options in total, under the 2011
plan and outside the plan, issued and outstanding.

29

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

On
December 4, 2015, the Company’s Board of Directors approved and adopted the Thermomedics, Inc. 2015 Flexible Stock Plan
(“Thermomedics 2015 Plan”). The Thermomedics 2015 Plan provides for awards of incentive stock options, nonqualified
stock options, restricted stock awards, performance units, performance shares, SARs and other stock-based awards to employees
and consultants. Under the Thermomedics 2015 Plan, up to 5 million shares of common stock may be granted pursuant to awards. As
of June 30, 2017, 342,500 options were previously issued under the Thermomedics 2015 plan to employees and consultant. These options
have vested and were fully expensed as of the nine months ended September 30, 2017.

There
are inherent uncertainties in making estimates about forecasts of future operating results and identifying comparable companies
and transactions that may be indicative of the fair value of the Company’s securities. The Company believes that the estimates
of the fair value of its common stock options at each option grant date were reasonable under the circumstances.

Stock-Based
Compensation Expense

Stock-based
compensation expense for awards granted to employees is recognized on a straight-line basis over the requisite service period
based on the grant-date fair value. Forfeitures are estimated at the time of grant and require the estimates to be revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company recorded compensation expense
related to stock options, restricted stock and preferred shares of approximately $60,000 and $200,000 for the three months ended
September 30, 2017 and 2016, respectively and approximately $1.0 million and $0.8 million for the nine months ended September
30, 2017 and 2016, respectively.

6.
Taxes

In
July 2008, the Company completed the sale of all of the outstanding capital stock of Xmark to Stanley. In January 2010, Stanley
received a notice from the Canadian Revenue Agency (“CRA”) that the CRA would be performing a review of Xmark’s
Canadian tax returns for the periods 2005 through 2008. This review covers all periods that the Company owned Xmark. The review
performed by CRA resulted in an assessment of approximately $1.4 million, in 2011.

During
2012, the Company received an indemnification claim notice from Stanley related to the matter. The Company did not agree with
the position taken by the CRA, and filed a formal appeal related to the matter. In addition, Stanley received assessments for
withholding taxes on deemed dividend payments in respect of the disallowed management fee totaling approximately $0.2 million,
for which we filed a formal appeal. In connection with the filing of the appeals, Stanley was required to remit an upfront payment
of a portion of the tax reassessment totaling approximately $950,000. The Company has also filed a formal appeal related to the
withholding tax assessments, pursuant to which Stanley was required to remit an additional upfront payment of approximately $220,000.
The Company has agreed to repay Stanley for the upfront payments, plus interest and the upfront payments made by Stanley is reflected
as a liability on the accompanying consolidated balance sheet as “Tax Liability”

As
of September 30, 2017, the Company had paid a total amount of $694,360 of the liability. In addition, Stanley had received a total
refund of $148,325 from the CRA which was deducted from the recorded liability. Based on management’s estimate, including
reconciling to Stanley’s accounts, the Company has a recorded tax liability of approximately $110,000, as reflected as a
liability on the accompanying consolidated balance sheet as of September 30, 2017.

7.
Commitments and Contingencies

Lease
Commitments

The
Company leases certain office space under non-cancelable operating leases, including the Company’s corporate offices in
Delray Beach, Florida under a lease scheduled to expire in October 18, 2018, laboratory and office space in Pleasanton, California
a lease scheduled to expire in September 30, 2018 and office and manufacturing space in Concord, California which is currently
on a month-to-month commitment for approximately $7,600 per month. Rent expense under operating leases totaled approximately $183,000
and $184,000 for the nine months ended September 30, 2017 and 2016, respectively.

LG
Capital Funding Litigation

On
March 7, 2017, LG Capital Funding, LLC (“LG”), filed a complaint in the U.S. District Court of the Eastern District
of New York (the “Court”), related to a 10% Convertible Redeemable Note issued by us to LG on July 7, 2016 in the
amount of $66,150 (the “LG Note”). The LG Note provides that LG is entitled to convert all or any amount of the outstanding
balance and accrued interest of the LG Note into shares of our Common Stock. The complaint alleges breach of contract and anticipatory
breach of contract, asserting, among other things, that we failed to deliver shares of stock to LG pursuant to a notice of conversion,
and failed to reserve a sufficient number of shares of stock issuable under the terms of the LG Note. On July 12, 2017, the Court
denied LG’s motion for summary judgment. The Company will continue to answer and defend against this complaint.

30

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

Other
Legal Proceedings

The
Company is a party to certain legal actions, as either plaintiff or defendant, arising in the ordinary course of business, none
of which is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.
However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental
investigations, legal and administrative cases and proceedings, whether civil or criminal, settlements, judgments and investigations,
claims or charges in any such matters, and developments or assertions by or against the Company relating to the Company or to
the Company’s intellectual property rights and intellectual property licenses could have a material adverse effect on the
Company’s business, financial condition and operating results.

Distributor
and Supplier Agreements

Under
certain agreements the Company may be subject to penalties if they are unable to supply products under its obligations. Since
inception, the Company has never incurred any such penalties.

8.
Employment Contracts and Stock Compensation to Related Parties

On
April 8, 2016, the Company entered into employment contracts with both Mr. Caragol and Mr. Probst, effective January 1, 2016.
The terms of Mr. Caragol’s employment contract include a three-year term and a salary of $275,000. Mr. Caragol’s salary
will automatically adjust to $350,000 at the time that PositiveID’s common stock is listed on a national exchange. Mr. Caragol
is eligible for annual bonuses and was granted 167 stock options, which vest; (i) 57 on January 1, 2017; (ii) 55 on January 1,
2018; (iii) 55 on January 1, 2019. These options will expire on January 1, 2021. Mr. Caragol is also entitled to the use of a
Company car and related expenses and an unaccountable expense allowance of $25,000. The terms of Mr. Probst’s employment
contract include a three-year term and a salary of $200,000. Mr. Probst’s salary will automatically adjust to $250,000 at
the time that PositiveID’s common stock is listed on a national exchange. Mr. Probst is eligible for annual bonuses and
was granted 100 stock options, which vest; (i) 34 on January 1, 2017; (ii) 33 on January 1, 2018; (iii) 33 on January 1, 2019.
These options will expire on January 1, 2021.

If
either Mr. Caragol or Mr. Probst’s employment is terminated prior to the expiration of the term of his employment agreement,
certain significant payments become due. The amount of such payments depends on the nature of the termination. In addition, the
employment agreement contains a change of control provision that provides for the payment of 2.0 times and 2.95 times in the case
of Mr. Probst and Mr. Caragol, respectively of the then current base salary and the same multipliers of the highest bonus paid
to the executive during the three calendar years immediately prior to the change of control. Any outstanding stock options or
restricted shares held by the executive as of the date of his termination or a change of control become vested and exercisable
as of such date, and remain exercisable during the remaining life of the option. The employment agreement also contains non-compete
and confidentiality provisions which are effective from the date of employment through two years from the date the employment
agreement is terminated.

9.
Segments

The
Company operates in three business segments: Molecular Diagnostics, Medical Devices, and Mobile Labs.

Molecular
Diagnostics

The
Company develops molecular diagnostic systems for rapid medical testing and bio-threat detection. The Company’s fully automated
pathogen detection systems are designed to detect a range of biological threats. The Company’s M-BAND (Microfluidic Bio-agent
Autonomous Networked Detector) system is an airborne bio-threat detection system developed for the homeland defense industry to
detect biological weapons of mass destruction. The Company is developing the FireflyDX family of products, automated point-of-need
pathogen detection systems for rapid diagnostics.

Medical
Devices

Through
its wholly owned Thermomedics subsidiary, the Company markets and sells the Caregiver product. Caregiver is an FDA-cleared for
clinical use, infrared thermometer that measures forehead temperature in adults, children and infants, without contact. Caregiver
is the world’s first clinically validated, non-contact thermometer for the healthcare providers market, which includes hospitals,
physicians’ offices, medical clinics, nursing homes and other long-term care institutions, and acute care hospitals. Our
Caregiver thermometer with TouchFree™ technology is less likely to transmit infectious disease than devices that require
even minimal contact. It therefore saves medical facilities the cost of probe covers (up to $0.10 per temperature reading), storage
space and disposal costs.

The
following is the selected segment data for the three and nine months ended September 30, 2017 and 2016 (in thousands):

Three
months ended September 30, 2017

Molecular
Diagnostics

Medical
Devices

Mobile
Labs

Corporate

Total

Revenue

$

17

$

77

$

1,373

$

—

$

1,467

Operating
(loss)

$

(201

)

$

(114

)

$

(9

)

$

(566

)

$

(890

)

Depreciation
and amortization

$

(2

)

$

(27

)

$

(21

)

$

—

$

(50

)

Interest
and other income (expense)

$

10

$

—

$

(3

)

$

(1,018

)

$

(1,011

)

Net
loss

$

(190

)

$

(115

)

$

(12

)

$

(1,584

)

$

(1,901

)

Goodwill

$

510

$

91

$

199

$

—

$

800

Segmented
assets

$

548

$

413

$

1,380

$

35

$

2,376

Expenditures
for property and equipment

$

—

$

—

$

(11

)

$

—

$

(11

)

Three
months ended September 30, 2016

Molecular
Diagnostics

Medical
Devices

Mobile
Labs

Corporate

Total

Revenue

$

52

$

145

$

868

$

—

$

1,065

Operating
(loss)

$

(165

)

$

(81

)

$

(167

)

$

(2,991

)

$

(3,404

)

Depreciation
and amortization

$

(4

)

$

(26

)

$

(21

)

$

—

$

(51

)

Interest
and other income (expense)

$

4

$

(58

)

$

(2

)

$

(1,023

)

$

(1,079

)

Net
loss

$

(162

)

$

(141

)

$

(167

)

$

(4,013

)

$

(4,483

)

Goodwill

$

510

$

91

$

199

$

—

$

800

Segmented
assets

$

600

$

583

$

1,234

$

195

$

2,612

Expenditures
for property and equipment

$

—

$

—

$

—

$

—

$

—

Nine
months ended September 30, 2017

Molecular
Diagnostics

Medical
Devices

Mobile
Labs

Corporate

Total

Revenue

$

142

$

349

$

3,428

$

—

$

3,919

Operating
(loss)

$

(554

)

$

(231

)

$

(373

)

$

(2,463

)

$

(3,621

)

Depreciation
and amortization

$

(6

)

$

(81

)

$

(64

)

$

—

$

(151

)

Interest
and other income (expense)

$

23

$

(3

)

$

—

$

(3,071

)

$

(3,051

)

Net
loss

$

(531

)

$

(234

)

$

(374

)

$

(5,533

)

$

(6,672

)

Goodwill

$

510

$

91

$

199

$

—

$

800

Segmented
assets

$

548

$

413

$

1,380

$

35

$

2,376

Expenditures
for property and equipment

$

—

$

—

$

(26

)

$

—

$

(26

)

Nine
months ended September 30, 2016

Molecular
Diagnostics

Medical
Devices

Mobile
Labs

Corporate

Total

Revenue

$

52

$

346

$

4,180

$

—

$

4,578

Operating
(loss)

$

(710

)

$

(356

)

$

(52

)

$

(4,929

)

$

(6,047

)

Depreciation
and amortization

$

(110

)

$

(81

)

$

(60

)

$

—

$

(251

)

Interest
and other income (expense)

$

17

$

(59

)

$

(2

)

$

(4,226

)

$

(4,270

)

Net
loss

$

(726

)

$

(415

)

$

(54

)

$

(9,122

)

$

(10,317

)

Goodwill

$

510

$

91

$

199

$

—

$

800

Segmented
assets

$

600

$

583

$

1,234

$

195

$

2,612

Expenditures
for property and equipment

$

(1

)

$

—

$

(7

)

$

—

$

(8

)

32

POSITIVEID
CORPORATION

Notes
to the Condensed Consolidated Financial Statements

September
30, 2017

(Unaudited)

10.
Subsequent Events

On
October 2, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender, providing for the
purchase of two Convertible Promissory Notes in the aggregate principal amount of $107,000 (the “Notes”), with the
first note being in the amount of $53,500 (“Note I”), and the second note being in the amount of $53,500 (“Note
II”). Note I was funded subsequent to September 30, 2017, with the Company receiving $45,000 of net proceeds (net of OID,
legal and other fees). Note II will initially be paid for by the issuance of an offsetting $50,000 note issued to the Company
by the Lender (the “Collateralized Note”). The funding of Note II is subject to the mutual agreement of the lender
and the Company. The lender is required to pay the principal amount of Note I in cash and in full prior to executing any conversions
under Note II. The Notes bear an interest rate of 12%, and are due and payable on October 2, 2018. The Notes may be converted
by the lender at any time into shares of Company’s common stock (as determined in the Notes) calculated at the time of conversion,
except for Note II, which requires full payment of the Collateralized Note by the lender before conversions may be made. The Notes
(subject to funding in the case of Note II) may be converted by the lender at any time into shares of Company’s common stock
at a price equal to the lower of $0.0175 per share, or 62.5% of the lowest closing bid price of the common stock for the 20 prior
trading days including the day upon which a notice of conversion is received by the Company. As the note conversion includes a
“lesser of” pricing provision, the Company will record a derivative liability in connection with the issuance of Note
I.

On
October 11, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender, providing for the
purchase of two Convertible Redeemable Notes in the aggregate principal amount of $104,000 (the “Notes”), with the
first note being in the amount of $52,000 (“Note I”), and the second note being in the amount of $52,000 (“Note
II”). The Notes were funded subsequent to September 30, 2017, with the Company receiving $95,000 of net proceeds (net of
OID and legal fees). The Notes bear an interest rate of 12%, and are due and payable on October 11, 2018. The Notes may be converted
by the lender at any time into shares of Company’s common stock (as determined in the Notes) at a price equal to 62.5% of
the lowest closing bid price of the common stock for the 20 prior trading days including the day upon which a notice of conversion
is received by the Company. In connection with the issuance of the Notes, the Company will record a premium as the notes are considered
stock settled debt under ASC 480.

On November 9,
2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender for the purchase of a Convertible
Promissory Note in the aggregate principal amount of $53,000 (the “Note”). The Company expects the Note to
be funded within 5 business days after the close, with the Company receiving $50,000 of net proceeds (net of fees). The Note bears
an interest rate of 8%, and is due and payable on August 30, 2018. The Note may be converted by the lender at any time
into shares of Company’s common stock (as determined in the Note) at a price equal to 65% of the average of the lowest five
closing bid prices of the common stock for the 10 trading days ending on the latest complete trading day prior to the conversion
date. In connection with the issuance of the Note, the Company will record a premium as the notes are considered stock settled
debt under ASC 480.

On
November 13, 2017, the Company entered into a Securities Purchase Agreement (“SPA”) with a lender, providing
for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $104,000 (the “Notes”),
with the first note being in the amount of $52,000 (“Note I”), and the second note being in the amount of $52,000
(“Note II”). The Company expects Note I to be funded within 5 business days after the close, with the Company
receiving $47,500 of net proceeds (net of OID and legal fees). The funding of Note II is subject to the mutual agreement of the
lender and the Company. The lender is required to pay the principal amount of Note I in cash and in full prior to executing any
conversions under Note II. The Notes bear an interest rate of 12%, and are due and payable on November 13, 2018. The Notes may
be converted by the lender at any time into shares of Company’s common stock (as determined in the Notes) calculated at
the time of conversion, except for Note II, which requires full payment of Note II by the lender before conversions may be made.
The Notes (subject to funding in the case of Note II) may be converted by the lender at any time into shares of Company’s
common stock at a price equal to the 62.5% of the lowest closing bid price of the common stock for the 20 prior trading days including
the day upon which a notice of conversion is received by the Company. In connection with the issuance of the Notes, the Company
will record a premium as the notes are considered stock settled debt under ASC 480.

In
addition to the new notes discussed above, the Company, subsequent to September 30, 2017:

●

received
$260,250 of net proceeds (net of OID and legal fees) from the funding of notes under existing SPAs and back-end notes (see
Note 4).

●

issued
approximately 66.1 million shares of common stock in connection with the conversion of notes with a principal and interest
value of approximately $429,000.

33

Special
Note Regarding Forward-Looking Statements

This
Quarterly Report on Form 10Q (this “Report”) contains forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that reflect our current estimates, expectations and projections about our
future results, performance, prospects and opportunities. Forward-looking statements include, without limitation, statements about
our market opportunities, our business and growth strategies, our projected revenue and expense levels, possible future consolidated
results of operations, the adequacy of our available cash resources, our financing plans, our competitive position and the effects
of competition and the projected growth of the industries in which we operate, as well as the following statements:

●

the
expectation that operating losses will continue for the near future, and that until we are able to achieve profits, we intend
to continue to seek to access the capital markets to fund the development of our products;

●

that
we seek to structure our research and development on a project basis to allow management of costs and results on a discrete
short-term project basis, the expectation that doing so may result in quarterly expenses that rise and fall depending on the
underlying project status, and the expectation that this method of managing projects may allow us to minimize our firm fixed
commitments at any given point in time;

●

that
we intend to continue to explore strategic opportunities, including potential acquisition opportunities of businesses that
are complementary to ours;

●

that
we do not anticipate declaring any cash dividends on our common stock;

●

that
our ability to continue as a going concern is dependent upon our ability to obtain financing to fund the continued development
of our products and working capital requirements;

●

that
our current cash resources, our expected access to capital under existing financing arrangements, and, if necessary, delaying
and/or reducing certain research, development and related activities and costs, that we will have sufficient funds available
to meet our working capital requirements for the near-term future;

●

that
our products have certain technological advantages, but maintaining these advantages will require continual investment in
research and development, and later in sales and marketing;

●

that
if any of our manufacturers or suppliers were to cease supplying us with system components, we would be able to procure alternative
sources without material disruption to our business, and that we plan to continue to outsource any manufacturing requirements
of our current and under development products;

●

that
our Caregiver thermometer with TouchFree technology is less likely to transmit infectious disease than devices that require
even minimal contact.

●

that
we will be able to close the transaction with ExcitePCR.

This
Report also contains forward-looking statements attributed to third parties relating to their estimates regarding the size of
the future market for products and systems such as our products and systems, and the assumptions underlying such estimates. Forward-looking
statements include all statements that are not historical facts and can be identified by forward-looking statements such as “may,”
“might,” “should,” “could,” “will,” “intends,” “estimates,”
“predicts,” “projects,” “potential,” “continue,” “believes,” “anticipates,”
“plans,” “expects” and similar expressions. Forward-looking statements are only predictions based on our
current expectations and projections, or those of third parties, about future events and involve risks and uncertainties.

Although
we believe that the expectations reflected in the forward-looking statements contained in this Report on are based upon reasonable
assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In
light of these risks, uncertainties and assumptions, the forward-looking statements, events and circumstances discussed in this
Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking
statements. Important factors that could cause our actual results, level of performance or achievements to differ materially from
those expressed or forecasted in, or implied by, the forward-looking statements we make in this Report are discussed in our Annual
Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31, 2017 under “Item 1A. Risk Factors”
and elsewhere and include:

●

our
ability to predict the extent of future losses or when we will become profitable;

●

our
ability to continue as a going concern;

●

our
ability to successfully consider, review, and if appropriate, implement other strategic opportunities;

●

our
expectation that we will incur losses, on a consolidated basis, for the foreseeable future;

●

our
ability to fund our operations and continued development of our products, including FireflyDX;

our
ability to pay obligations when due which may result in an event of default under our financing arrangements;

●

our
ability to close the transaction with ExcitePCR; and

●

our
ability to defend against pending or future litigation.

You
should not place undue reliance on any forward-looking statements. In addition, past financial or operating performance is not
necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate future
results or future period trends. Except as otherwise required by federal securities laws, we disclaim any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement contained in this Report to reflect any change in our
expectations or any change in events, conditions or circumstances on which any such statement is based. All forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements included
in this Quarterly Report.

Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and related notes included in Item 1 of this Quarterly Report
on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2016.

Overview

PositiveID
is a life sciences and technology company focused primarily on the healthcare and homeland security markets.

PositiveID
is currently developing the FireflyDX family of products which are, automated point-of-care pathogen detection systems for rapid
diagnostics. PositiveID has a substantial portfolio of intellectual property related primarily to sample preparation and rapid
medical testing applications.

On
January 30, 2017, the Company filed the First Amendment to the Company’s Third Amended and Restated Certificate of Incorporation
with the State of Delaware, to increase the Company’s authorized capital stock from 3.9 billion shares to 20 billion shares
(19.995 billion common) and to change the par value of the Company’s Common Stock from $0.001 to $0.0001. On
May 19, 2017, the Company filed the Second Amendment to the Third Amended and Restated
Certificate of Incorporation, as amended, with the State of Delaware, to implement
a 1-for-3,000 reverse stock split of the Company’s outstanding Common Stock,
which became effective on May 23, 2017. The reverse stock split affected the outstanding Common
Stock as well as all Common Stock underlying convertible notes, warrants, convertible preferred stock and stock options
outstanding immediately prior to the reverse stock split. The number of authorized shares was not adjusted. All share values and
amounts in the accompanying historical consolidated financial statements have been adjusted to reflect the change in the par value
of the Common Stock and the 1-for-3,000 reverse stock split.

On
August 24, 2017, the Company and its wholly-owned subsidiary PositiveID Diagnostics, Inc. (collectively, the “Seller”),
entered into an Asset Purchase Agreement (“APA”) with ExcitePCR Corporation (“ExcitePCR”). Pursuant to
the APA, at closing, the Seller will sell and deliver to ExcitePCR all right, title and interest in all assets used or useful
in connection with the operation of the FireflyDX technology, which consists of the FireflyDX intellectual property and that of
its predecessor, the Dragonfly Dx technology and products, along with patents, the applicable know how used in the development
of the FireflyDX and Dragonfly Dx technology, and breadboard prototypes of both products (the “Firefly Technology”).
The consideration to be paid by ExcitePCR to the Seller pursuant to the APA, will be 10,500,000 shares of common stock of ExcitePCR,
and the Company will own approximately 91% of ExcitePCR post-closing of the sale (prior to any financing). As a condition to the
Seller’s obligation to close the transaction, ExcitePCR shall have completed a financing transaction with net proceeds to
ExcitePCR of at least $3 million. Additional conditions and deliverables at closing include a patent assignment agreement, accounting
services agreement, license agreement, and certain required consents from third parties. As of November 7, 2017, ExcitePCR and
the Company had not yet closed the transaction.

The
Company believes that the Firefly Technology has significant potential value to stockholders. The parties have entered into the
APA so ExcitePCR can secure financing and then independently pursue the development, improvement and commercialization of the
Firefly Technology. The current stockholders of ExcitePCR include two third-party individuals, who are working with ExcitePCR
to develop and execute the business plan of ExcitePCR. Lyle L. Probst (the Company’s President) is the Chief Executive Officer
of ExcitePCR, Dr. Kimothy Smith (the Company’s Chief Technology Advisor) is the Chief Science Officer of ExcitePCR. William
J. Caragol (the Company’s Chairman and CEO), is the Chairman of ExcitePCR.

35

Results
of Operations

Three
Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

The
following is the selected segment data for the three and months ended September 30, 2017 and 2016.

Three
Months Ended September 30, 2017

Molecular
Diagnostics

Medical
Devices

Mobile

Labs

Corporate

Total

Revenue

$

17

$

77

$

1,373

$

—

$

1,467

Cost
of revenue

7

13

922

—

942

Gross
profit

10

64

451

—

525

Selling,
general and administrative

132

119

460

566

1,277

Research
and development

79

59

—

—

138

Total
operating expenses

211

178

460

566

1,415

Operating
(loss)

$

(201

)

$

(114

)

$

(9

)

$

(566

)

$

(890

)

Three
Months Ended September 30, 2016

Molecular
Diagnostics

Medical
Devices

Mobile

Labs

Corporate

Total

Revenue

$

52

$

145

$

868

$

—

$

1,065

Cost
of revenue

1

25

501

—

527

Gross
profit

51

120

367

—

538

Selling,
general and administrative

177

53

534

2,991

3,755

Research
and development

39

148

—

—

187

Total
operating expenses

216

201

534

2,991

3,942

Operating
(loss)

$

(165

)

$

(81

)

$

(167

)

$

(2,991

)

$

(3,404

)

Revenue

We
reported revenue of $1.5 million and $1.1 million for the three months ended September 30, 2017 and 2016, respectively. The Company’s
current revenues are primarily generated from its Mobile Labs segment. Such revenue is recorded at the completion and delivery
of mobile lab and telecommunications vehicles. As individual projects may be material, revenues from quarter to quarter can vary
materially based on the timing of such deliveries. The increase in revenue is attributable to increased deliveries of mobile labs
and other specialty vehicles in the three months ended September 30, 2017 compared to the three months ended September 30, 2016.

Cost
of Revenue and Gross Profit

Cost
of revenue consists of inventory cost and compensation expense for employees and consultants working directly on the Company’s
revenue generating products and agreements. Cost of revenue was $0.9 million and $0.5 million for three months ended September
30, 2017 and 2016, respectively. Gross profit decreased from $538,000 in the three months ended September 30, 2016 to $525,000
in the three months ended September 30, 2017. As individual projects may be material, revenues from quarter to quarter can vary
materially based on the timing of such deliveries which resulted in the decrease in cost of revenue and gross profit. The increase
in cost of revenue was attributable to the increase in revenue discussed above. The decrease in gross profit and margin is attributable
to the change in revenue mix and specifically a decrease in revenue in the medical device segment.

Selling,
General and Administrative Expense

Selling,
general and administrative expense consists primarily of compensation for employees in executive, sales, marketing and operational
functions, including finance and accounting and corporate development. Included in selling, general and administrative expense
is all non-cash, equity based compensation. Other significant costs include depreciation and amortization, professional fees for
accounting and legal services, consulting fees and facilities costs.

Selling,
general and administrative decreased by approximately $2.5 million, or 66%, for the three months ended September 30, 2017 compared
to the three months ended September 30, 2016. This decreased was primarily driven by a decrease in stock based compensation expense.
In 2016, approximately $2.0 million, a one-time non-cash expense, was charged to stock based expense in connection with the exchange
of Series I Preferred shares to Series II preferred shares.

36

Research
and Development

Our
research and development expense consists primarily of labor (both internal and contract) and materials costs associated with
various development projects, including testing, developing prototypes and related expenses. Our research and development costs
include payments to our development partners and acquisition of in process research and development. We seek to structure our
research and development on a project basis to allow the management of costs and results on a discrete short-term project basis.
This may result in quarterly expenses that rise and fall depending on the underlying project status. We expect this method of
managing projects to allow us to minimize our firm fixed commitments at any given point in time.

Research
and development expense decreased by approximately $49,000, or 26%, for the three months ended September 30, 2017 compared to
the three months ended September 30, 2016. The decrease was primarily attributable to the decrease in labor, and engineering costs
related to the development of FireflyDX products.

Change
in Fair Value of Embedded Conversion Option Liability

The
change in fair value of embedded conversion option liability changed by approximately $1.5 million or 143%, for the three months
ended September 30, 2017 compared to the three months ended September 30, 2016. The change was primarily attributed to the revaluation
of the fair value of the embedded conversion option liability charged to other expense and the change in the fair-value of the
derivative liability in the three months ended September 30, 2017. This is a non-cash income/expense item.

Interest
Expense

Interest
expense decreased by approximately $1.7 million or 75%, for the three months ended September 30, 2017 compared to the three months
ended September 30, 2016. The decrease was primarily attributed to the lower amortization of fair value premiums and debt discounts
related to the decreased level of borrowing, through convertible notes, in the three months ended September 30, 2017. The amortization
of fair value premiums and debt discounts are non-cash income/expense items.